It seems odd to talk about the price of money. After all, money is what we use to pay for other stuff. Nevertheless, money is expensive.
Moving money; changing money; storing money – costs money. The worst culprit of these has to be changing currencies. This comes with a bunch of extra costs, big and small, and sometimes hidden carefully from the view of the unsuspecting saver.
Let’s understand the real cost of changing money from one currency to another and what these costs might be. Typically, there is one fee that everyone talks about, one charge that everyone just takes for granted and one that people often don’t realise is a cost at all. Of course, the most noise is made about the smallest cost, because why would any bank want to broadcast how much money they are sneaking out of a client’s transactions?
- 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. 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
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 on 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.