How I became an international financier or foreign exchange for beginners
Saturday, September 2, 2006 at 15:36 Anybody who leaves the UK to live and work abroad finds themselves turned into an international financier, whether they like it or not. The days when you can just up sticks with a wad of cash have long gone, as just about everybody in Britain now has a complex collection of bank accounts, loans, credit cards, investments, pensions, mortgages, life insurance policies, endowments and other personal finance products.
Before you move abroad you have to decide whether to move this stuff, cash it in, pay it off or at least find a way of keeping track of this complex financial web. Incidentally, the growth of the internet has made the latter a whole lot easier as it often you don’t need to rely on an erratic postal service to deliver your bank account statements.
In this first international money blog I want to look at just one area that I’ll admit caught me a little by surprise. Before I moved to Ibiza I had thought that transferring cash overseas was simply a matter of asking my bank. That's a very good way of throwing away your hard-earned cash.
Moneycorp, but there are a number of others including Foreign Currency Direct, Exchange4free or HiFX. As ever it is well worth shopping around. It would also be valuable to learn from your experiences, recommendations and hints. Please add at the bottom of this article or in the discussion forum.Most people still use their British high-street bank, probably without checking the small print to see how much it costs. You’ll probably be charged commission of 2% and transfer fees from £20 to £40 for each transaction.
Often the overseas transfer is carried out at the tourist exchange rate which is 2% or 3% below the commercial rate. If you were transferring the money from the UK to buy an overseas property costing 150,000 euros it would probably cost around £5,000 more to use a high street bank instead of going through a specialist foreign exchange broker.
Incidentally, setting up a foreign exchange or “forex” trading account is best done before you leave the UK. There are a number of forms that need to be filled in and checks carried out as a result of international legislation to prevent money laundering. This is far more straightforward if you’re in Britain. Once you’ve opened one or more accounts there is no obligation to use them and the forms don’t take long to complete.
Once you’ve opened your foreign exchange account the process of transferring the money is almost scarily simple. You simple phone up your foreign exchange dealer who will then make an offer based on the current spot price of the currency. Either you accept it or you try another company. Once agreed on the phone you have a binding contract to pay the forex company.
A few minutes later you’ll receive an email confirming the deal with one form for you to sign and another to fill in with details of the foreign bank that’s to receive the funds. You can either post, fax or scan and attach the completed forms to an email.
Finally, you have to ensure that the foreign exchange dealers receive your pounds sterling. With most British banks this process can be carried out over the phone or on the internet. There may costs involved depending on the amount involved and the speed of the transfer. But, providing you make the payment to the foreign exchange company within the agreed period, the amount of foreign currency you receive will be fixed at the point you made the initial phone call and agreed the price.
If you’re transferring a substantial amount of money overseas, for instance to buy a property, the process can turn you into something of an international exchange speculator. Prices on the money markets rise and fall by the minute. If you’re sending £100,000 to a European Union country and the pound gains a cent against the euro you’ve instantly gained 1000 euros. At the moment that’s worth about £700. It’s better than working for a living.
Of course, the opposite can happen just as easily. If you’re worried about foreign exchange fluctuations a specialist broker such as Moneycorp can help out by agreeing a fixed rate for future payments. This is particularly useful if you’re buying a new property overseas where there are regular amounts to be paid to the builder during the construction. You can also make similar fixed-rate arrangements for monthly transfers from the UK which is useful if you still have rental income or investments in Britain.
The only problem I ran into when buying my house in Ibiza was timing. A large proportion of the payment for the Spanish property was to come from a let-to-buy arrangement on the flat my wife Barbara and I own in Edinburgh. Basically, Bristol & West Building Society cocked-up the documentation which led to a delay in payment.
As the point at which we actually had to hand over the money for our new Ibiza home grew ever closer, it got more nerve-wracking. It looked as if we’d just make it on the basis that Moneycorp transfers to European Union banks are generally received on the same day. The trouble is that Moneycorp carries out these overseas transactions in the morning, my British bank makes its electronic transfers in the afternoon. So although it’s all supposed to be a same-day arrangement, the actual result is a day later.
Anyway, I’ll be discussing these things more as time goes by. Meanwhile I’d more than welcome your tips, experiences and reactions to this article. There’s room for comments below or in the money discussion forum.
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