Swapping the pennies in your pocket for foreign coins can be a confusing business but shopping around to make sure you get the best rates is a good idea to get the most for your money.
If you are carrying out larger transactions like a foreign house purchase, or sending money overseas, a competitive rate and low commission or fees is even more essential.
However, with so many different providers on the market, how can you get the best foreign currency exchange rates? Here’s some ideas which should help.
Watch the market
Unless you are changing currency in a hurry, it’s a good idea to follow the fluctuations in the currency market so you get a feel for what’s a ‘good’ rate. Understanding the movements can help you exchange your currency when the value is on an upswing rather than when it’s on a downward plunge.
If you don’t have an idea about how the currency has performed in recent days and weeks, you will only be able to find the best deal in the market currently available, rather than having an appreciation of whether you would be better to hang on to your cash for a while.
Don’t be dazzled by claims
It’s easy to rush to snap up deals from currency exchange providers that promise to have the ‘best rates on the market’ or ‘0% commission’.
However, very often these kind of claims can be very misleading. For example, a company that guarantees 0% commission on all of its deals could be simply widening the exchange rate to hide how it makes its profits.
Whilst it is possible to get some great deals if you shop around, don’t believe everything you are told without a careful scrutiny of the whole package.
Whilst it is very convenient to wander in to your local branch and exchange your currency, you are unlikely to get the best deals available on the high street.
Many places which offer currency exchange do so in combination with other services, for example travel agents and banks.
If you go online, you will be able to source established currency brokers whose main business is the foreign exchange market. The volume of business they do gives them far more leverage and frequently means you will be able to benefit from better rates. The knowledge and expertise offered by these kind of firms is also usually superb because knowing the currency market inside out is the key to their success.
Bigger IS better
If you have a lot of currency to exchange, very often doing it in one go rather than drips can secure you a better rate.
Specialist providers can often provide preferential rates for those that carry out a volume transaction which can save a lot of money in the long run. If you are planning on setting up a regular currency exchange via an online account, it may also be possible to get a better deal if you let the broker know.
The other thing to be aware of is that many specialist currency exchange brokers have a little bit of wiggle room in their rates. Therefore if you have seen a better deal elsewhere, don’t be afraid to mention it as you may find them willing to match it to secure your business.
If you are planning on carrying out a transaction in the future but want to use the exchange rates on offer today, it is possible to make a deal to lock in the price.
This is known as a forward contract and guarantees you a certain rate at a specified date in the future, regardless of what happens in the currency market between now and then. Of course, you risk losing out if the rates improve, but if you are happy to accept the current exchange rate then the security of knowing how much it will cost can be worth the risk.
However, it is essential to understand that a forward contract is legally binding so if the money is needed for something such as a house purchase which ends up falling through, you are still obligated to carry out the currency exchange.
The currency market is incredibly volatile and getting the best exchange rates involves a lot of research and forward planning. It is also essential that you ensure any provider is registered with the relevant body before handing over any cash, to ensure your money is safe. In the UK, currency brokers should be registered with the Financial Services Authority and hold the status of Authorised Payment Institution. The final decision will depend on personal preference but in addition to competitive rates, a friendly advisor who can help guide you through unfamiliar territory can be worth their weight in gold!