Be money smart when moving your funds between currencies
Managing your money across currencies can be complex, and costly.
There are two areas where this can impact you:
In your investment portfolios, and,
When you are moving funds from one currency to another.
We work with our clients to manage both these scenarios and will expand on how best to manage both here.
Managing currency in your investment portfolios
Investing across multiple currencies can be a useful tool to reduce risk and diversify, or it can be risk elevating.
It can be tempting to invest in a market with a weaker currency in the hope of better rates of return. There are two risks here. First, efficient global markets tend not to like arbitrage, where you can exploit a difference like this to get a better return. Another way to put is to say, if it seems too good to be true, it probably is. The potential of a higher return may be eroded by higher inflation in that market and a currency that is weakening over time. This can mean it will be more expensive to move back into your primary currency later, and this cost increase can potentially be more than the total gains on your investment.
Even with major more stable currencies, there is a risk that exchange rates can move in the opposite direction to which you hope. A stable currency can be impacted by its local market, or global events which can result in a movement in currency values.
For example, if you moved assets from Euros to US dollars a year or so ago, it might have been at an exchange rate of around US 97 cents to the Euro. That is historically expensive. If you are returning to Euros in March 2025, a year later, the exchange rate has dropped to 0.92cents, So you may have sold at 97 and bought back at 92. That is a 4.5% loss.
Having presented the risks, depending on your situation, your goals and expected future plans, it may be beneficial and indeed even risk reducing to invest across different currencies and we have recommended this for some clients. If you do hold assets in different currencies, as many of our clients do, it is another layer of complexity that needs to be actively managed.
The key message here is that currency is another variable. It can be useful to spread your risk, that is, to diversify, and to plan for future needs. It can be useful defensively to protect against adverse movements, but we do not recommend using currency speculatively. Like all investments you need to weigh up the potential risk of losses against opportunities and align this with what you are wanting to achieve.
If you have a multi-currency investment, or if you think you should have one, speak with us.
Moving money between currencies
The One of the most expensive exercises when it comes to managing money can be when you need to move between currencies.
It can be difficult to understand, there are often time constraints, and the thought of your money travelling across the globe can be stress inducing for many.
Changing currencies can come with a raft of extra costs, big and small, and sometimes hidden carefully from the view of the unsuspecting saver.
If you want to jump straight to solutions, take a look at the Black Swan Capital currency exchange service here: https://www.blackswancapital.eu/currency-exchange.
There are three main types of fees that a bank or currency exchange service might charge you. Often the small charges are highlighted, sometimes discounted, and occasionally used to hide the much larger and less transparent costs. Despite what a bank or transfer agency might state, the cost is never zero- these institutions are not charities after all, they exist to make a profit- and they will do so by charging you, directly or indirectly. There is noting wrong with that per se, as long as it is clearly and transparently presented, and reasonable.
Let’s look at these costs more closely.
Charge 1 – the little and loud one
Commissions, transfer fees, transaction costs. Call it what you like, but most currency exchange services will tell you they don’t have these, nowadays, or that they have discounted it for you. Otherwise, they might state in their promotional material “Only €10 per transaction” which, on the face of it, sounds like a great deal, doesn’t it? Transferring $100,000 and only paying the price of a couple of cappuccinos? Brilliant!
Naturally, this is kind of misleading, as this is not where the institution is making their money.
Charge 2 – the one we ignore, but the one that costs us the most
This fee has a few technical names, which shows it’s not designed for the client to understand. Known as the bid/offer spread, the bid/ask or the margin, this is the difference between the buying price and selling price of any currency, and it can cost you a lot.
You might have seen the exchange desk in an airport arrivals hall or on the street in tourist areas of your city with a list of currencies on a board outside showing a buy and sell price. This is the same principle.
Those little kiosks can sometimes have a bid/ask of 10%, but even your high street bank will often have a bid/offer spread on 5% or more. This means that every time you move your money with online banking, 2.5% of it could be going straight to the Champagne fund for the shareholders meeting.
Using a dedicated currency broker can hugely reduce these margins, but it’s important to understand this cost for any transfer you are making.
Charge 3 – the sneaky one
The final cost involved with money transfers often doesn’t even feel like a fee, so it is often ignored.
When you instruct a cross-border or multi-currency transfer with your bank, you will probably find that it takes 3-5 working days to arrive.
This ‘clearing time’ used to be necessary to reconcile records between different banking systems and registers, but in today’s connected, online world, it really isn’t necessary. In fact, the European Union has very strict rules about how long banks can take for a transfer, in order to prevent these delays.
The fact is, during this period, your money is not in your ceding account and not in the destination account. So where is it?
Well, during that period, the amount you have instructed is still available for a bank to leverage. It’s all about keeping control of your assets for as long as possible to squeeze every last drop of potential growth from your hard-earned cash, while not having to share that with you for a little while.
Always understand how long your transfers will take and why. Don’t be afraid to look at this as a fee.
So what’s the solution?
Use a dedicated currency brokerage service and understand how much of your transfer is actually arriving at the destination and how much is being siphoned off in fees along the way. A good currency exchange service will be quite open about how and where they are making their money.
Many online banks these days have currency exchange built-in to their service proposition, but specialist foreign exchange can be even more cost effective.
Never, ever, blindly transfer between currencies through your regular banking service without checking which of the three costs above is going to hurt you the most.
To help save our clients more money, we have set up Black Swan Capital Exchange (BSCX). This is available to everyone, but if you are already a client of Black Swan Capital or one of our partner companies then you could save even more due to preferential rates on the margin (Charge 2).
We don’t charge transaction fees or commissions (Charge 1), we keep the margins (Charge 2) to an absolute minimum in order to help our clients use more of their money to work towards their financial goals and we work as an intermediary so there are no clearing times or additional delays (Charge 3).
If you ever need to transfer money from one currency to another, contact us to register your details and see how much we could help you save.
