How do international money transfers work?

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If you want to send money overseas, a foreign exchange or currency broker can be a good option. They often charge no fees and usually offer a better exchange rate than a high street bank. So how do they work?

Let’s say you want to send 10,000 euros to France as a deposit on a French property purchase. You’ve contacted your bank but the service is expensive. You’ve also checked out a money transfer firm but, again, the charges are high. You therefore decide to use a foreign exchange broker.

Set up an account

First, you have to register to set up an account with the broker. A dealer will then usually contact you to discuss the transfer. If you are happy with the costs and exchange rate, you can book the transaction, give details of the recipient’s account and pay the agreed amount, typically by electronic transfer from your UK bank account.

Foreign currency brokers can also usually arrange regular payments to a recipient overseas, perhaps if you pay a foreign mortgage or school fees

Once it has received the funds, the broker will send the currency electronically to your beneficiary. The whole process shouldn’t take more than one or two days, though this depends on the currency – with popular currencies such as euros or US dollars, the time taken should be shorter than for less familiar ones.

Exchange rates

Foreign exchange brokers do not normally charge a fee for transfers of more than £3,000. They also generally offer better exchange rates than the high-street banks. For example, you might need £8,410 to send £10,000 euros through a broker, compared to £8,850 through a bank.

The bank would also charge a fee on top, which could be as high as £40. In other words, you could save about £480 by choosing a currency broker.

Types of transfer

You can also benefit from exchange rate movements by using a foreign exchange broker. There are normally three types of transfer, and you can select the one that best suits your needs and time scale. A transfer at the current exchange rate, sometimes called a spot deal, is the quickest and most straightforward as you simply send the funds immediately at the today’s rate of exchange.

Forward contract

If you do not need to send the funds straightaway, you could consider a ‘forward’ contract, which allows you to lock into today’s rate but effects the transfer the money at a given date in the future.

A forward contract can be appealing if you don’t want to have to worry about exchange rate movements, or if you expect the rate to get worse. Remember, however, that currencies can be volatile and the rate could move against you.

Put down a deposit

The exchange rate on a forward contract is calculated by adjusting the current rate for so-called “forward points”, so is not the same as the current exchange rate. Your broker should explain the terms and conditions of the contract, but it’s worth making sure you understand the cost before you go ahead.

You do not have to pay the full price of a forward contract up front, though you will normally have to put down a deposit, with the rest due on the transfer date.

Limit orders

A limit order is another way to play the currency markets. If you choose a limit order, you nominate your ideal exchange rate. When the rate is reached, the broker automatically buys the currency and transfers the funds. Limit orders are not normally appropriate for small amounts, and many brokers insist on a minimum of £30,000.

Regular payments

Foreign currency brokers can also usually arrange regular payments to a recipient overseas, perhaps if you pay a foreign mortgage or school fees. The minimum payment tends to be about £500.

Consumer protection

Security is paramount if you are sending money overseas, so you should always check that your broker is authorised by the Financial Conduct Authority. The firm must then operate within certain guidelines to safeguard consumers. However, most foreign exchange brokers are not members of the Financial Services Compensation Scheme, so you are not guaranteed to get your money back if something should go wrong.

Compare brokers

The cost of international money transfers varies from broker to broker. MoneySuperMarket’s free independent comparison service allows you to quickly and easily compare the deals on offer from all the major currency brokers, so you can make the most of your money.


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