Don't get ripped off by overseas money transfers
Running a second home overseas can be an expensive business, with electricity bills for the air-conditioning or patio heater, plus the cost of clearing leaves from a hot tub or keeping the bougainvillea watered. Then on top of all that, you have to pay for these services in a different currency from a foreign bank account.
Research from the World Bank found that 64% of consumers believe the price of an international money transfer is fairly represented by the fee advertised by a bank or foreign exchange company, many of which declare transactions offer '0% commission'. In reality
it is much more, with steep fees hidden in an inflated exchange rate.
"When you're transferring money abroad, there are two things you need to focus on – one is any fees that are being charged and the other is the exchange rate," says James Daley, co-founder of website Fairerfinance.com. "While many companies don't charge any explicit fees, they take their cut by offering a worse exchange rate. So commission-free or fee-free deals aren't necessarily the cheapest."
In a mystery shopping exercise, which involved asking the main UK banks for the cost of sending €1,000 to a German current account, peer-to-peer foreign exchange company TransferWise found a difference of as much as £40.66 between the price quoted for a money transfer by NatWest (£10) versus the true price when exchange rates were compared (£50.66).
While HSBC quoted £4, the actual cost turned out to be £34.09. Lloyds TSB claimed that its transfers were completely free. Actually, they cost £26.48 because the bank was using an unfavourable exchange rate.
For those who have second homes overseas and need to transfer money from the UK to Europe, or worldwide, paying such high fees regularly can stack up to hundreds of pounds.
"When transferring money overseas, it's important to select a reputable company that has the right financial protection and offers secure transfer methods so that you can retract the funds if there are any complications," says Erica Chang, regional director of holiday home website Owners Direct. "We advise homeowners to always ensure that transfers can be tracked."
There is a growing number of specialist foreign exchange companies that offer more transparent and favourable rates and fees for those sending money to a foreign bank account or making a payment to a company abroad.
John Murray spends about 10 weeks a year in south-western France at his holiday home. He uses the company Caxton FX to transfer cash into a French bank account, then uses the French bank card for spending when he's in Europe, as well as for paying local taxes, utility bills and insurance.
You can set up a free account with Caxton FX online, which offers fee-free international transfers from £100, and which, it says, cost an average of 4% less than an international transfer with a high street bank.
The best-value companies vary depending on how much you want to transfer but a comparison for Moneywise by Fairer Finance of sending €100, €500 and €1,000 from the UK to Europe found that FairFX and Currencies Direct are significantly cheaper than using PayPal or Western Union. Sending €500 from the UK abroad will cost £389.20 with FairFX, and £391.70 with Currencies Direct, compared with £398.46 with Western Union and £399.32 with PayPal.
Cheaper still is the new peer-to-peer currency specialist TransferWise, which offers £383.18 for a €500 transfer, and £766.34 for €1,000, compared with Western Union's £792.01 and PayPal's £798.63. The company promises straightforward online money transfers using the official mid-market rate exchange rate.
For smaller amounts, TransferWise charges a nominal flat fee of £1 for transfers of up to £200, after which it charges 0.5% of the amount sent.
If you are transferring a large amount at once, say, to buy a property, a currency broker may be more appropriate. David Lamb, senior dealer at foreign currency specialist FEXCO, says a currency broker can help you save "anything up to 5% on the exchange rate – which can translate into thousands of pounds on a property purchase".
Brokers, for example UKForex and Moneycorp, also allow you to lock into a rate, which can help you budget. "Exchange rates are always subject to volatility so consider how you will manage the financial risks that could arise from adverse currency movements," says Marianne Gilmore, commercial director at Moneycorp.
"Forward contracts enable you to agree an exchange rate in advance, so you know exactly what rate you'll be trading on the day you make a transfer. For example, if you had agreed to a €2,000 renovation to your holiday home, a forward contract would work well for you to manage this payment. If the euro strengthened over the period of the building work, you would have peace of mind on the pound-value of the invoice – no matter what happens in the market."
Of course, the rate could also drop and you could miss out on a more favourable deal.
The most important thing is to check that the currency broker or money transfer service you have chosen is authorised by the Financial Conduct Authority (FCA), rather than just 'registered', which means there is no process if the firm goes bust.
"A few years ago, a number of people lost out when Crown Currency Exchange went out of business," says Daley. "Most currency brokers are not covered by the Financial Services Compensation Scheme but those that are authorised by the FCA must segregate client money so that it can't be touched in the event that they become insolvent."
The difference between two currencies; specifically how much one currency is worth relative to each other. For example, if £1 is worth $1.50, converting sterling to US dollars, the exchange rate is 1.5. Converting dollars to sterling at those levels, the exchange rate is 0.66, so $1 is worth 66p. There are a wide variety of factors that influence the exchange rate, such as a country’s interest rates, inflation, and the state of politics and the economy in that country.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.