Why use a currency broker instead of your bank for large money transfers

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Banks have a bad reputation. Sometimes unfairly so, because one argument is that they are the lifeblood of society, helping us buy a home, lending us money, enabling us to be paid quickly and then providing the in infrastructure to spend our money. But in some circumstances, it’s true, they are the devil. International payments for example, are one area where banks have been ripping people off for years with terrible exchange rates and high fees. It’s no secret that you should use a currency broker instead of your bank. So, to prove that point, here we highlight why you should use a currency broker instead of your bank when sending money abroad.

Why use a currency broker instead of your bank?

Here are the top ten reasons why you should use a currency broker instead of your bank for large international money transfers.

  1. Better exchange rates: You’ll get a better exchange rate with a currency broker
  2. Risk management: Banks generally don’t offer forward contracts to lock in an exchange rate
  3. Personal Service: A currency broker will offer you an account manager to hold your hand through the process
  4. Advice: You can call up a currency broker almost any time to ask for advice and progress reports
  5. Timing: With a currency broker you have more control over the timing of a transaction
  6. Price: You can use limit and stop-loss orders to get a better price with a currency broker
  7. Hedging: Currency brokers offer a variety of ways to protect your foreign exchange exposure
  8. Options: Some currency brokers offer OTC FX options for buying and selling currency
  9. Receiving foreign currency: if you receive a foreign currency into a UK bank they will generally convert it automatically giving you no control over costs and pricing
  10. Transparency: currency brokers can give you a fixed percentage mark up on your conversions.

When it may be better to use your bank for fx

Of course, there are sometimes occasions when a currency broker is not better than your bank.

Here are a few reasons why a bank may be more appropriate than a currency broker.

  • Small transactions: sometimes currency brokers will only convert £1,000 upwards
  • Convenience: you’ll need to open an account with a currency broker, but you will already have one with your bank.
  • Pricing: It will be more expensive to send money through your bank, but if it is just a one-off small amount the price may not matter versus the time it takes to open a currency broker account.
  • FSCS protection: currency brokers are not covered by the FSCS (Financial Services Compensation Scheme) so your money is potentially more at risk if the currency broker goes bust

However, with the rise of money transfer apps, it is often better to use a money transfer app when sending small amounts of money abroad.

Video discussion – bank versus brokers

Watch our video in which we talk discuss why currency brokers are better than banks for large money transfers.

YouTube video

Things to consider when using a currency broker instead of your bank

The key services that currency brokers offer are:

  • Better exchange rates than bank accounts
  • Same-day international payments for sending money abroad
  • Lock in exchange rates with currency forward contracts
  • Personal service and advice on market timing

Currency brokers can convert currency and send it abroad the same day. Depending on the receiving country and banking system, this means that funds can arrive in foreign bank accounts on the same day they were converted. This is a particular benefit because foreign exchange transactions settle the next day. If you transfer funds internationally with your bank account, it can take several days for the transaction to settle into the foreign currency and then another few days for the funds to be sent and received abroad. Using a currency broker significantly speeds up the transaction cycle of international payments.

Follow these steps to ensure you get the best exchange rate and service when transferring money abroad through a currency broker:

Compare currency brokers. The currency brokerage market is very competitive, and currency brokers will try and offer the best exchange rates and service to try and win your business.

Check exchange rate prices. Currency broker fees are built into the exchange rate and can be calculated as a percentage from the mid-market. Prices can vary depending on the size, currency pair, and frequency of conversions. You can use our currency broker comparison table to see the standard costs of each provider and what you can expect to pay. It is also worth noting that all prices are negotiable, so it is worth asking if they can reduce their standard exchange rates for you when comparing brokers.

The cheapest isn’t always the best. Large currency transfers can be very costly if not done effectively. Some currency brokers offer an online-only service with very cheap fees, however, there is value to be placed on having someone to call to ensure your conversion is timed well and that funds arrive at the destination on time. Also, it can take time to open a currency brokerage account, so make sure you choose a currency broker that offers all the services you need. For example, many of the cheapest currency brokers do not offer a personal service or currency forward contracts.

Faster transfers can cost more. For smaller international money transfers, it can cost more for funds to arrive quicker. These can be additional banking fees rather than costs from a currency broker. A currency broker will consolidate all their fees into the exchange rate they offer their clients, and should not charge more for larger transactions. However, if you are only sending small amounts of foreign currency abroad and want it done quickly, the currency broker will have to pay the banking charges, which may not be covered by the fees they charge built into the exchange rate. These fees may then be passed on to the client. When converting smaller amounts of money, it is worth considering if you need it sent quickly or if you are happy to pay a bit more for a faster transfer. A cost-effective option is to use a money transfer provider for small transactions and a currency broker for larger, more complex conversions.

Currency brokers are not free. When you transfer money with a currency broker, all fees should be included in the exchange rate. Included in this will be banking charges, the difference between where a currency broker buys and sells currency, and the costs the currency broker has of running a business.

Currency forward for hedging. If you have an upcoming large currency conversion or transfer, then using a currency forward can potentially save a lot of money. By locking in the current rate for a future transfer, you can protect yourself from the currency exchange rate moving against you and will not have to pay more than you budgeted for your foreign currency.

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