Recent reports have shown international banks experiencing an increase in the number of foreign currency accounts being opened by Britons, in a bid to safeguard themselves from political and economic instability. Although good news for these banks, concern has been raised for customers holding cash in multiple currencies in the UK, who may be getting a poor foreign exchange (FX) deal when moving funds between accounts.
Whilst opening a foreign currency account alongside your standard current account could well be a prudent move in the current economic climate, moving funds between these accounts with an unfavourable exchange rate can result in significant and unnecessary financial loss.
Having access to multiple foreign currency accounts can be an incredibly useful resource for private individuals with international interests living and working in the UK. As the volatility in sterling exchange rates following the European Union (EU) referendum continues to persist, especially with Brexit negotiations now underway, it comes as no surprise that there has been a rise in the number of people setting up such accounts.
Brett Thomas, head of dealing at Godi, notes the sheer drop in the pound alone has prompted many to seriously consider how their future currency requirements and obligations could be affected as the long and complex Brexit process unfolds. But he urges currency account holders to also consider how to manage their accounts effectively to avoid being left out of pocket.
An EU national working in the UK for example, may want to convert their earnings in sterling back into euros every quarter through their currency accounts. They can do this by moving and converting their pounds from their sterling account directly into their euro account, with both accounts being held with the same bank.
A transfer like this would see the customer typically charged a 2% spread by their bank. At the time of writing (Interbank Rate 1.0980) that would equate to a rate of 1.0760 on a transfer of £10,000.00, and so a total of €10,760.00 would credit their euro account.
However, through the use of a specialist FX broker, this same customer could have received a typical spread of 0.5%. This very same trade would mean the customer would have received an exchange rate of 1.0925 and their euro account credited with €10,925.00 – an additional €165.00 compared with the bank rate.
“There is no denying the convenience factor of logging onto your online banking and simply clicking the mouse to shift funds from your current account into your Euro Dollar account, but you could be paying a heavy premium for that convenience. Those that are transacting large amounts of money into or from currency accounts on a regular basis will be hit the hardest with this approach.
“Banks are notorious for passing on unfavourable exchange rates to their customers, and so being caught unaware could mean you are needlessly giving away your hard earned cash by accepting the equivalent of ‘High Street’ bureau de change rates.
“Using a broker is a much more cost effective way of moving money between currency accounts and sending money to beneficiaries. Godi focuses on educating clients on the best way to do this and creates a transparent strategy for clients so they are more confident with managing their money when faced with foreign exchange exposure.”
Send Brett Thomas an email – firstname.lastname@example.org