Currency Exchange: A Beginner's Guide

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It's a common scenario. Caught up in the excitement of property hunting in Spain, Julie and Andy Smith didn't take fluctuating exchange rates into account when organizing the finances for their villa.

"We worked out how much we could afford based on the exchange rate for Euros at the time.

"But when it came to buying our property the rate had slipped quite a lot and we ended up paying around £7,000 more than we had expected."

Luckily the couple were still able to buy their place in the sun, but for some would-be holiday-home owners a fall in currency rates, or a transaction that doesn't arrive on time, can mean waving goodbye to their dream.

Until ten years ago pioneering Brits abroad were forced to accept the poor exchange rates and hefty transfer fees offered by their banks - and around 50 per cent of holiday-home owners still use their banks for international transfers.

But with an estimated one in 20 of us now owning property abroad, the options have opened up for cheaper, and more flexible and efficient currency purchasing.

A quick glance at bank rates, compared to those offered by currency exchange specialists, shows that the traditional banks just aren't competitive.

According to figures from one of the leading exchange companies, Currencies Direct, a homebuyer spending 100,000 euros could save almost £3,000 by using their service instead of a bank.

Suzanne Sullivan, from Currencies Direct says: "We buy in bulk so we can offer the sort of commercial rates to individuals that were only available to businesses ten years ago."

Time is often of the essence when racing to put down a deposit on a property, and many buyers have found that their bank was not able to act quickly enough when they needed to transfer funds.

When Mark Manley was buying his holiday home in Estepona, Spain, he nearly came unstuck by leaving the currency transfer to the last minute.

"Just before completion I learned that asking a UK bank to transfer money immediately is akin to asking for a free flight to the moon!," says Mark. "I didn't get Qué? as an answer - but it wasn't far off!"

Susanne Sullivan advises that although transactions can often be done straight away, you should allow ten working days if you can because of possible delays at the other end.

Luckily for Mark he realised before it was too late that he needed to shop around for currency and service. "I read about it in the Easyjet flight magazine and in another magazine about buying abroad. It sounded sensible.

"On the currency transactions I made I calculated that using Currencies Direct saved me in the order of £12,000."

As well as looking for better rates, it's worth shopping around for companies that charge less, or nothing at all, to transfer your money abroad. Your first saving could be made when buying your property.

For purchasers buying off plan it is usual to make stage payments. According to Sullivan you can save over £300 in transfer fees by using their service (which doesn't charge for transfers) instead of the bank.

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Once your dream home is built, you may find you want to send regular payments to your foreign bank account. "A lot of people transfer money over on a monthly or quarterly basis," says Sullivan.

"They like to keep their bank account overseas topped up to use on bills and spending money when they're on holiday."

Fees will vary among the specialist companies, but with Currencies Direct, as long as a minimum of £150 a month is transferred to your overseas account, the transaction is carried out for free.

This is particularly pertinent to the estimated 850,000 retired Brits abroad who may have their pension sent overseas each month.

If you pay the average bank's flat fee of £27 for each monthly transfer, you could be adding up to £324 a year to the cost of living abroad.

If this is multiplied over an eleven year retirement period, expat pensioners could pay an extra £3,564 by failing to shop around for the best deal.

If you want to avoid fluctuating interest rates costing you more for your place in the sun, or feel like gambling on an upturn in the market, currency exchange specialists can offer several different types of transaction.

1. Spot Rate: As with your bank you buy a sum of foreign currency at the day's rate for immediate delivery.

2. Forward Contract: You fix the rate for a period of up to two years. You will have to put down a deposit, but it is very useful for making stage payments for an off-plan property.

3. Limit Order: You instruct your currency dealer to buy currency when it hits a designated (high) rate. A great way to make yourself some extra money if you're not in a hurry.

4. Stop Loss: If the market is on a downward turn you can reduce your potential losses by instructing your dealer to buy if it falls below a certain amount.

If you're likely to need to carry out international transactions in the future, shop around for the best deals.

- Once you've found the right specialist company, you will be asked to open an account, which can usually be done online.

- The company will run electronic ID checks straightaway, and you should be up and running and ready to buy currency when you need it.

- You will be allocated a currency dealer who you can phone at any time for free.

- Although, as Currencies Direct is keen to point out, they can't advise you on what you should do, your dealer can tell you what's happening in the markets that might affect you.

Nikki Sheehan

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