Rising pound offers sudden window to move money

The election announcement lifted the pound. But where’s best to buy your currency? Amelia Murray investigates

The pound has risen to a four month high following Theresa May’s calling of a snap election on June 8 – offering those who need to move money the chance of a better return. Hargreaves Lansdown, the investment firm and financial services group, said it experienced “the busiest day of the year so far as investors flocked to cash in on stronger sterling by exchanging their pounds for other currencies. On Tuesday we saw more than double the number of currency trades than on an average day so far this year.”

The pound remains a long way below the level it had reached before the outcome of the referendum in June. A weaker pound, and the prospect of continued volatility as Brexit negotiations continue, mean it is more vital than ever to get the best deal on international money transfers.

Your bank will move money overseas, but at substantial cost.

The banks still dominate – handling 80pc of transfers. They charge up to £40 for a “priority international payment” and other such fees, but make the bulk of their money by adding a hefty margin on the exchange rate (see below).

The alternative is an array of specialist brokers making up the other 20pc of the market, including: Currencies Direct, Moneycorp, the Post Office, Caxton FX, HiFX and the newer, no-frills operations such as Transferwise and Azimo.

To make an overseas payment, you will need the details of the bank to which the money is to be sent including an International Bank Account Number (IBAN) and Bank Identifier Code (BIC). An IBAN and BIC are similar to your usual account number, but with extra information that helps the overseas bank identify the destination account and make the payment.

A less visible cost comes in the form of an uncompetitive exchange rate.

Firms that provide international money transfer services offer rates more or less near the prevailing “spot rate”. The difference is their profit.

Online money transfer companies usually display their exchange rates and allow customers to obtain a quote before they make the transaction. However, banks typically do not.

Your bank should tell you the exchange rate when it is asked, but unless customers ring up every provider, it is difficult to compare which one is offering the best rate.

Andrew Hagger of MoneyComms, the comparison service, says customers tend to look to their bank first as they assume all charge similar amounts. But he described the system as more akin to that of an overdraft, with a confusing mix of add-on fees and rates which “bamboozle” customers.

Mr Hagger added: “I think the key message is to use a foreign currency specialist and avoid the high street banks.”

There may also be a charge to receive the payment – the beneficiary will pay this unless you choose the “sender to pay all costs” option. However, the bank may not be able to tell you what these charges are in advance.

Deposits held in a bank or building society are protected under European law. They are bound to underwrite funds up to £85,000. With other money transfer services, the rules are slightly different – and the protection weaker. Transfer firms may be either “authorised by” or “registered with” the Financial Conduct Authority (FCA). An FCA “authorised” service means your funds cannot be “co-mingled” – they must be kept separate from the company’s money for two working days.

At the end of this time, the cash must be safeguarded and held in a different bank account. This means that if the company goes bust, your money would be easy to untangle and you should get it back.

Companies that are “registered” with the City watchdog do not offer such protection. You can check which companies are regulated on the FCA register.

The list of major currency exchange services that are authorised includes: Moneycorp, Western Union, Transferwise, HiFX, Caxton FX, Halo, Currencies Direct, Azimo and Moneygram.

Low-cost, online services are less well known but can charge more competitive prices thanks to lower overheads.

Services such as Transferwise work by linking bank accounts across the world. Customers make a transfer to Transferwise’s account in their own country, and the firm pays out of an account in the recipient’s country.

No money is actually traded, which cuts costs.

Firms like this may have transfer limits but even so, they can be quite high.

Always make sure you establish that the service has enough of the foreign currency you require to complete your transaction.

If you use a specialist service for transferring large amounts of money – say for a property purchase – you’ll need to obtain a quote by phone.

On Wednesday, shortly after the pound’s post-election-announcement boost, Telegraph Money asked for quotes from HiFX and FC Exchange for transfers of £10,000, £20,000 and £100,000 to euros held in a European bank account.

At the time the interbank rate was 1.197 euros per pound.

HiFX offered customers a rate of €1.1950 for transfers of £10,000 and £20,000 and €1.1960 for £100,000. No fees applied. FC Exchange offered customers a rate of €1.194.

So £10,000 would mean a transfer of €11,944. Customers would get €23,888 for £20,000 and €119,440 for £100,000. By comparison, online services will bump up the cost for larger transfers. A forward exchange contract (FEC) or sometimes called a “forward’ is designed to protect customers against fluctuating exchange rates. This can prove useful when making regular payments, for instance to maintain a property or support a child abroad at university.

The price paid for the currency is agreed on the day and then remains valid for up to two years.

The Financial Ombudsman, which arbitrates where customers fall into disputes with banks and other firms, recounted a recent complaint which it did not uphold.

“The customer didn’t opt to convert the money in advance and was subsequently horrified to find themselves £20,000 short when the money was converted. We didn’t uphold the complaint as the bank hadn’t made an error and had highlighted the options.”

A regular payment plan can lock into an agreed rate for a fixed period, applying to a number of payments. The rate is likely to be less attractive to reflect the firm’s risk.

‘Certain types of regulation offer far less protection for those moving money’