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The exponential evolution in global technology means that our friends, family and businesses are more accessible than ever before. In fact, research by the Bank of England estimates the value of cross-border payments will increase 67% from $150 trillion in 2017 to $250 trillion in 2027.
Whether you need to make a one-off payment or are making multiple payments abroad a month, the associated costs of transferring funds between currencies can soon add up, so it pays to go to a provider that can get you the best value for money.
There are several factors that affect the cost of your currency transfers:
- the exchange rate
- the timing
- the service fees
The exchange rate
The currency market is a live market, therefore exchange rates update every second (that’s 86,400 times a day). What one currency is worth against another at any given moment in time will vary depending on global conditions.
Economics, politics, war and natural disasters are the biggest drivers of rate changes – because the market is ultimately driven by the market investors’ sentiment.
Consider the Brexit referendum – the biggest players in the currency market felt dramatic uncertainty which led to the pound plummeting in value versus the euro. Another example is that an increase in one country’s exports to another country affects supply and demand, and over time this could strengthen the value of the exporting country’s currency.
Those making regular mortgage payments on a Spanish property, or businesses importing stock from the Eurozone, will have noticed how it costs more in GBP to achieve the same amount of EUR they once paid.
When you search for a currency pairing online to see what the exchange rate is, you’ll see the ‘interbank rate’. This is exactly what one currency is worth against another at that very moment. Exchanging currency is never a straight swap where you will achieve the interbank rate. Exchanging currency is buying one currency with another currency. Currency is a product that needs stocking and retailing. Some providers may advertise that they offer the interbank rate, but beware of the added fees that are charged which can make a significant difference to the amount you part with/end up with.
Securing a competitive exchange rate is a very important place to start. The bigger the currency transfer company, the closer to the interbank rate they will be able to access as they are buying the currency wholesale – and the more they buy the better rate they will achieve to pass on to you. Some currency transfer companies are so large they have an internal treasury to manage the vast amounts of currencies they handle on a daily basis. This means they often have the currency in stock without needing to buy it from the bank, leaving them in a comfortable position to be very competitive on the rates.
The timing
The currency market can move as much as 1% a day. If you don’t have the time to monitor the market, or if you don’t understand how certain events might positively or negatively affect the currencies you’re interested in exchanging, then it’s highly likely you will miss out on generating the best return on your transfers.
Here’s an example. In January, you have your offer accepted on a property abroad. Many months later, when the property sale completes, the market may have moved out of your favour, meaning you now need to source potentially tens of thousands of pounds more to get the same sum in euros.
TorFX assign a dedicated Account Manager to each of our clients. Your Account Manager will contact you to discuss your requirements so that they can keep an eye on the market for you. They will contact you by phone, email or text to notify you when the market has moved in your favour within your timescales, giving you the control to optimise your returns.
There are many ways your Account Manager can assist you, such as:
- forward contracts (to secure the rate today for up to two years in the future)
- limit order (triggering a trade when your best-case scenario rate is met)
- stop loss order (triggering a trade when your worst-case scenario rate is met)
With TorFX you’ll also gain access to the TorFX trading platform, where you can view and secure live rates, available 24/7 via our website and app.
The service fees
Service fees can come in many various shapes and sizes, but the most common ones are:
- a set amount charged (e.g. £20 per overseas transaction)
- a tiered charge (e.g. £5 for under £5,000, £7 for £10,000)
- a percentage amount (e.g. 3% of the transaction amount)
At TorFX we do not charge any service fees for our currency transfer service or dedicated Account Management, so when you agree an exchange rate with us, that’s all you’ll pay.
