If you need to send money overseas, the chances are your first instinct will be to pop along and queue at your local bank or travel agent.
However, this might not be the most convenient, nor the cheapest way for you to make the payment, even if seems like the most obvious.
There are now many other ways to make an international payment which has significant advantages over using the high street. Here are five of the top reasons why you might want to consider using a different method.
1) Exchange rate roulette
When it comes to sending funds overseas and converting to a different currency, the rates you get depend on where you go.
The best rates are known as the interbank rates, but these aren't available to the general public. At the opposite end of the spectrum are tourist rates, typically the prices quoted at places like the airport.
Firms who deal with international payments use exchange rates which are between the two. However, banks charge more than dedicated currency brokers; the difference is usually significant, around 4-5%.
There are two reasons for this. Firstly, the bank will add extra onto the exchange rate they give you so even if they advertise as having no commission; you still end up paying more. Secondly, because the amount of foreign exchange transactions carried out is relatively small, banks don't have the bargaining power of a broker who carries out a vast number every day.
2) Get the right advice
Ever heard the phrase 'jack of all trades, master of none'? This is the perfect way to describe banks.
As a portal for all things financial, they offer a range of services but usually can't provide the kind of in-depth expertise you could get from a currency specialist.
You might think if you are simply conducting a transaction you won't need any advice, but with a range of different charges which could apply, having an expert who knows how to offer you the best route for your money can be a big help.
For example a bank will typically charge around £40 for sending international payments but if the money is going within the EU, the transaction could be free if it's carried out using the SEPA system.
3) Speedy
Although it is always a very good idea to plan in advance, there may be occasions when you need to send money overseas and would like it to arrive sooner rather than later.
Although the process is electronic, it takes different amounts of time to reach certain countries, especially if it has to be sent via a third party clearing bank en route.
A currency broker will be able to give you the most accurate information about to get the transfer completed in the shortest amount of time, a facility most banks simply can't offer. A broker will normally be able to circumvent some of the delays experienced when making a payment via a bank, which means the money could arrive 1-3 days sooner.
4) Hold that price!
Have you ever been on holiday and been watching the exchange rates, praying for them to stay where you want them to be for when you are ready to go away? If you send international payments, you will no doubt have experienced the same.
If you are buying a property or making some other kind of investment, it will no doubt be essential that you understand exactly how much sterling it will cost. Image committing to buying a property and not having any idea what the final price it! If you don't have a fixed exchange rate it's a real gamble. What seems to be a great deal could turn into a turkey if exchange rates move in the wrong direction.
The option is to use a forward contract where once the market reaches a price you like, you 'fix' it with your currency broker. This commits you to making the transaction at a future date on the price you defined, regardless of how the market moves in the meantime. This allows you to proceed with the certainty of knowing exactly how much money you need, and no fears of a market collapse.
5) Avoid charges
The exchange rate isn't the only factor which can influence how much money gets to your intended destination.
Banks can charge as much as £40 to make the payment whilst the receiving bank can also levy costs. For example, in Spain banks charge 0.5% of the amount being transferred. If a third bank is needed to divert the money en route, it can cost even more.
By using a currency broker, you can usually send the money at no cost plus other charges along the way can either be avoided or minimized.
Conclusion
If you opt to use a currency broker ensure that it is an Authorized Payments Institution with the Financial Services Authority. Any currency broker which is awarded this status has passed the most rigorous and a stringent check the FSA carries out and has shown itself to be solvent with exemplary money and data handling procedures.
Whilst the high street might be your first thought for making international money transfers, it will not only work out as more expensive, you will not receive the same level of expertise and advice that you can get from a currency broker. And what's even better, by using an online provider, you can make all the arrangements from the comfort of your own living room – what could be more convenient than that?