The exchange rate shows the value of two currencies relative to one another. You’ll see it expressed as a simple formula showing how much the Pound is worth when compared to other global currencies, for example 1 GBP = 1.18 EUR.
There are multiple factors that affect the exchange rate, including everything from supply and demand for a particular currency to levels of consumer confidence and spending. Even current events, for example political instability or a natural disaster, can have an impact on the value of a currency.
In many cases, the exchange rate won’t have all that much of a noticeable effect on your daily life. But if you’re buying goods or services from overseas, travelling overseas or sending money overseas, you will need to take current exchange rates into account.
How can I find the best exchange rate?
Finding a great exchange rate can save you lots of money when you’re making a transaction involving foreign currency, but it’s not the only expense to consider. Transfer fees, withdrawal fees, and other hidden charges can also turn the smallest of transactions into a much larger expense, so it pays to compare a range of options before choosing the right option.
Keep these tips in mind when looking for the best available exchange rate:
What is the current mid-market rate? You will probably have noticed that the exchange rate you can Google, or see quoted in the financial news is different to the one that banks, transfer companies, and travel money companies offer to their customers. That’s because the rate on the news is the ‘mid-marketrate‘. This is the price at which banks around the world purchase currency from one another. Check on this rate regularly so you know how much your pounds are really worth.
Are you getting the right rate? As mentioned above, the mid-market rate and a company’s customer rate are two different things. Despite this, some providers won’t make it clear that when you use their online calculator to work out how much a transaction will cost you, the calculator will use the mid-market rate rather than the one you will actually receive. Make sure you are using the customer exchange rate when calculating the cost of your transaction.
Can you place a forward contract? In the case of a international money transfer, some providers offer the flexibility of placing a forwardcontract. This option allows you to lock in an exchange rate now for a transfer that will be completed in the future. So if the value of the pound drops in the interim, your money is protected against any decreases.
Can you place a limit order? Similarly, a limit order allows you to specify your desired transfer parameters, such as the exchange rate you would like for your transaction, and then the order will only be placed if your transfer conditions are met. This means you can take advantage of changing market conditions to send a more affordable transfer.
Should you send a large transfer? In the case of both money transfers and travel money, you can sometimes get better rates when you’re spending larger amounts of money. Sending one big transfer, or ordering one big batch of foreign currency, rather than several smaller ones is often a good idea.
How can I send an international money transfer?
One thing you’ll discover when hunting for the best exchange rate is that there are plenty of options to choose from when you want to send money overseas. Many people simply go with the easiest – and perhaps the most convenient – option and choose their bank to send the money overseas. The problem, however, is that banks offer some of the worst exchange rates you will find and usually also charge high transfer fees.
The absence of any value for money from the banks has led to the rise of online money transfer services in recent years. These providers, including Currency Fair, Currency Solutions, FairFX and many more, offer exchange rates far superior to those offered by the banks. They also offer lower fees in most cases, providing secure and fast online transfers from your bank account to your beneficiary’s account.
Another option worth considering is a money transfer company that allows you to send funds for cash collection. Your beneficiary is able to collect the funds you send by visiting their nearest transfer company branch. Providers like Western Union, MoneyGram and Xpress Money all operate extensive international transfer networks.
Depending on your circumstances, there are a couple of other options you may wish to consider. A banker’s draft, for example, is a secure yet slow international transfer method, while digital payment company PayPal can also be used for small funds transfers.
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When Dave gets an urgent email from his brother, Sam, requesting urgent cash, Dave isn’t particularly surprised. Sam is backpacking around Australia and has never been known for his thriftiness, so Dave had already started putting money aside in case Sam ran out of money while on his travels. He agrees to send Sam £1,000 to help him pay for accommodation and food, but rather than simply send the funds straight away he decides to compare the fee and exchange rate on offer from his bank and from a money transfer company.
Money transfer company
1 GBP = 2.128 AUD
1 GBP = 2.0735 AUD
Online bank account transfer
International wire transfer
3 business days
1-3 business days
Amount received (in AUD)
As Dave’s comparison shows, he’ll be able to send an extra AUD $54.50 to his brother when he uses the money transfer company, plus he will save £17.50 in transfer fees as opposed to using his bank.
Compare international money transfer services and their exchange rates
Table: sorted by a combination of service offering and the amount your recipient will receive
Disclaimer: Exchange rates change often. Confirm the total cost with the provider before transferring money.
Charlie Barton is a publisher at Finder. He specialises in banking and investments products, including banking apps, current accounts, share-dealing platforms and stocks and shares ISAs. Charlie has a first-class degree from the London School of Economics, and in his spare time enjoys long walks on the beach.
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