Living in Spain means having to use the Euro as our currency of daily life, compounded when large purchases are made from houses or cars, to renovations, installing heating or cooling systems, medical treatment, paying for satellite TV installation, and a lot of other expenses that may be specific to your lifestyle. Traditionally we use high street banks, without realising they don’t always offer the best rate of exchange.
Furthermore, in this difficult times like we’ve experienced in 2009 and going forward into most of 2010, losing money on currency exchange is easy to do. Did you know that most high street banks, building societies, and Spanish cajas offer the tourist rate of exchange when you send pounds from the UK to Spain, or in reverse, send Euros to the UK.
The commercial rate of exchange, which is what the banks pay is never the rate you pay, and there can be a significant difference between the two. A specialist foreign exchange company is more likely to offer the commercial rate than the tourist rate. This could mean a two to three point difference on the rate you’re offered.
Here’s an example. Right now (December 2009) the Euro is strong, and is hovering around 1.09€-1.11€ to the pound. Now let’s assume the bank rate you’re offered is 1.08€ to the pound. A foreign exchange company might offer you 1.11€ to the pound, I’m sure you’ll agree this is a significant difference, but in practical terms it means that transferring £100,000 to Spain will see a foreign exchange company give you an extra 3,000€.
Considering how often many of us transfer funds from the UK to Spain on a monthly or regular interval, even with smaller amounts we see a significant saving, and with the rate of exchange being so weak every little bit we keep in our pockets is better than just giving it away to banks when we don’t need to.
Foreign Exchange Fees can be Waived
One of the most compelling reasons to use a foreign exchange company though are because they often waive transfer fees that you might pay £25 to £40 per transaction to a bank. Transferring £500 for monthly living expenses and paying a £25 transaction fee amounts to losing 5%, notwithstanding being offered the tourist rate of exchange.
Spanish banks are not immune from taking a small percentage as well, we’ve heard reports of Spanish banks charging fees that can be as much as 1% simply to receive the funds. Admittedly the fee a Spanish bank charges might be a fixed amount that on larger transfers can be ignored, but on smaller monthly payments adds up. Some UK foreign exchange companies operating in Spain have agreements with Spanish banks to waive receiving fees.
So, if a specialist foreign exchange company offers a rate 3 points more favourable than a high street bank, and waives transfer fees, and is able to deposit your money into a Spanish bank without additional fees, then on smaller amounts you could be looking at savings of 4-8%, and that adds up month by month.
Larger transfers initiated through a bank also require registration for each transaction, to comply with UK and EU anti-money laundering legislation. Whilst there is no fee for this it does add to the hassle of currency exchange and means you need to supply personal details everytime. In contrast a foreign exchange company operating in Spain will assign an account manager who is able to process your transactions with information kept on file.
Improve your Currency Exchange Transactions
The rate of exchange fluctuates so much it can be disheartening to watch it from day to day, seemingly never improving, or only briefly when it does. Of course the problem is that when we need to transfer funds, Murphy’s law invariably comes into play and we are rarely able to capitalise on better rates. See our feature on currency exchange in Spain.
For me this is probably the strongest reason yet for keeping an account with a foreign exchange company. Your high street bank will never let you plan in advance, they don’t offer spot transactions, forward transactions, limit orders, and they certainly don’t offer rate watch services.
Buy Now, Pay Now: Probably one of the most frustrating aspects of moving currency from the UK to Spain, or vice versa, is the knowledge that banks offer a day rate, but you and I know the rate fluctuates during the day, and sometimes quite favourably, but the only people who seem to benefit are forex speculators. How often do we see financial news bulletins on Sky mention the pound rallied in the middle of the day, only to settle at days end? Spot transactions with a foreign exchange company eliminate this regret by allowing you to call your account manager and settle a transaction right now while the rate is favourable.
Buy Now, Pay Later: Consider securing a favourable rate as much as 12 months in advance by making a small deposit to a currency exchange company. You protect yourself against too much movement in the market because the trader agrees to fix the rate you negotiate. Currency exchange companies love this type of transaction, they’re able to plan further ahead themselves, which makes them more profitable, and we benefit from a known fixed rate of exchange if a major transaction is anticipated.
Why not place an order for a particular rate of exchange that isn’t conducted until the exchange rate reaches the level you’ve specified. You are protected from negative movement because your transaction isn’t processed until the rate is reached. Here’s how it works, your currency exchange account manager enters the rate you want into their computer system, and your transaction is kept on hold until your rate is reached, then the transaction is processed automatically.
Most currency exchange companies are happy to deal with large and small transactions, there is no reason not to contact them even if the amount seems ridiculously small. Here in the Serranía we know of several retired couples who bought their Spanish homes with cash, and are quite capable of living on just 250€ per month which includes groceries, power, phone, and occasional tapas. Even so, currency exchange companies are the better option over a high street bank. Remembering that most banks charge a transfer fee, smaller amounts are even more reason to talk to a currency specialist.