Penny for your thoughts
The options available when transferring funds to France to make your money go further
There’s a whole world of culture on the other side of the Channel just waiting to be discovered, and UK expats have spent decades finding out just how much France has to offer. But whether you’re thinking of moving to France on a permanent or semi-permanent basis, you’ll want to make your money stretch as far as possible to ensure you can make the best of your time there.
Short-term spending money isn’t the only reason that you might need to make a transfer; you could be buying a French property, planning an investment or moving your UK pension across. Your currency transfer needs may even be as simple as needing to pay the bills, but whatever your own individual circumstances might be, knowing the options when it comes to transferring money from the UK to France (and vice versa) is a must for any expat.
EXCHANGE RATES MATTER
This also means getting to grips with exchange rates. In the most basic terms, an exchange rate is what one currency is worth relative to another. So the GBP/EUR exchange rate would tell you how many euros you’d get per pound, while the EUR/GBP exchange rate would tell you how many pounds you’d get per euro.
A ‘favourable’ exchange rate is one which results in you getting more of the ‘foreign’ currency for your money, so a favourable GBP/EUR exchange rate would result in each pound being worth more euros than it had previously.
The difference of even a couple of cents per pound can mean a difference of hundreds or even thousands on larger currency transfers. However, exchange rates are tricky things and can rise or fall dramatically within hours depending on outside influences, such as political and economic news.
While exchange rate movement can be minor, it can also be pretty extreme. For an example of how significantly exchange rate movements can impact currency transfers, we only have to look back to June of last year and the UK’s referendum on EU membership. In the run-up to the UK’s decision to leave the EU, the GBP/ EUR exchange rate rose to €1.30 due to polling data predicting a ‘Remain’ victory. When it became clear on 24 June that the ‘Leave’ side had prevailed, the pound to euro exchange rate abruptly dropped to €1.23 before spiralling as low as €1.10 by October. This drop of 20 cents would have meant the difference of €30,000 on a £150,000 currency transfer. As the saying goes, look after the pennies…
Transferring your money at the right time can make a difference of thousands of pounds on larger sums, such as those involved in the purchase of a French property, for example. While some currency movements can’t be predicted, there are a number of options available to help you protect your transfer from sudden market movements.
WHICH TRANSFER SERVICE IS RIGHT FOR YOU?
Currency brokers are specialists in the field and typically offer far more competitive exchange rates than banks, as well as conducting transfers on a fee-free basis.
So what are some of the transfer options you should consider?
As you might have realised from the name, a spot contract or spot transfer is an onthe-spot currency exchange, where your pounds are immediately converted into euros. The process is quick and secure, and can be arranged at short notice. This option may suit you best if the currency market suddenly moves in your favour, or if you need to move money quickly. However, if you’ve got time on your side then you might want to consider using a forward contract.
According to a recent survey, 14% of UK adults transfer money abroad through a bank or specialist provider at least once a month, with half of those arranging transfers at least once a fortnight
With a forward contract, you can effectively ‘lock in’ an exchange rate for up to two years before the actual currency transfer takes place. This kind of delay can be handy for a number of reasons – you might not have all of the required funds ready, for example, or you might be waiting for your purchase of a French property to go through.
This service offers a sense of security and gives you the ability to budget effectively, because if the markets worsen in the future then you will still be guaranteed the exchange rate you secured with your forward contract.
Another type of future-based service is the limit order. If you open an account with a currency broker, you may be assigned a personal account manager to oversee your requirements and offer you the benefit of their foreign exchange insight. With a limit order, you can pick the exchange rate you would like your transfer to be conducted at and know that the transfer will only take place if the market reaches that level. If the exchange rate does rise, the transfer will be triggered automatically so you won’t lose out if the exchange rate suddenly falls again. This takes the pressure off you and means you won’t have to keep a constant eye on the currency market.
With a stop-loss order you can set a minimum rate at which to make an exchange. This means you can wait to see if the market improves and know exactly how much you’ll get for your transfer if it doesn’t. So, if there’s a sudden slump in the currency market, you would be protected from the worst of it by having the order in place.
If brokers offer it, there is also the option of taking out a limit order and stop-loss order together to cover all the bases. This can ensure that you get an exchange rate within a certain range, regardless of whether currencies rise or fall. It is designed to target a favourable exchange rate above current market levels, but at the same time ensures you don’t lose out should adverse currency fluctuations occur.
REGULAR OVERSEAS PAYMENTS (ROP)
While many of the services offered by currency brokers are helpful if you’re planning a move to France, many people need to continue moving money across once they’re living there.
Some of the most common reasons for needing to move money to France once living there include:
• Making mortgage payments
• Paying utility bills
• Paying international school fees
• Paying rent
• Moving pension payments
If you need to make currency transfers like this on a regular basis then a regular overseas payments (ROP) service could prove invaluable. This works by automatically transferring a specified amount of funds to a designated bank account at the same time each month. As well as removing any worry or hassle about making repeat transfers, giving you more time and freedom to really enjoy living in France, you can make hundreds of pounds of savings a year if the broker offers fee-free transfers.
Living in France can be a deeply rewarding experience, giving you the opportunity to meet new people, try new things and immerse yourself in a different culture. If you’re worried about moving your money across with you, don’t be – there’s plenty of help available to reduce the hassle and leave you with more money to enjoy living your new life. Oliver Meredew is a currency analyst at TorFX torfx.com