For millions of Britons departing on holiday this weekend, the renewed strength of the euro is not good news. Sterling has fallen to an eight-month low against the euro. Yesterday, the pound was at €1.1153, having been at €1.1428 earlier in the week. Sterling has also moved lower against the US dollar, in a trend that provides some holiday money outlets with an excuse to offer even worse rates than before.
The Financial Conduct Authority (FCA) this week criticised the misleadingly generous rates offered by websites that transfer foreign currency abroad.
These sites, with their currency converter calculators, display the interbank rates at which banks trade and lend among themselves. However, customers sending money abroad get much lower rates, the watchdog warns.
David Lamb, the head of dealing at Fexco Corporate Payments, a money transfer service says: “When they have a live currency converter it gives the impression that that is the rate customers will get. But the rate does not really exist from a retail perspective, for consumers or even businesses.”
Banks give you a lower rate, after their own costs are taken into account.
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Research found that more than half of those transferring cash overseas focused more on the amount of money that the recipient got, rather than how much it cost to send.
“There is no compensation scheme for foreign currency providers that go bust
“This highlights that people are not focusing enough on rates and fees,” says Andrew Buller from Consumer Intelligence, a market research agency.
If you have been transferring money for a while, shop around to see if you could get a better deal. “Customers should consider switching company, and focus more on exchange rates when transferring money because currency volatility can make a major difference,” says Mr Buller. Consumer Intelligence says the most popular companies that send money abroad include Western Union, PayPal, Barclays, Halifax, Post Office, Lloyds Bank, HSBC, TransferWise, NatWest and Santander.
There are two ways to lock-in better exchange rates. The first is by asking a broker to monitor currency markets for you and warn of upcoming dips and peaks to indicate the best time to buy or sell. The second is by purchasing a “futures contract” — the right to buy a set amount of currency at a set time from a broker.
“If you are planning to buy a property overseas and have got to the stage where you know the deal will go through on a particular date, you can lock in the exchange rate with a contract that allows you to buy a currency at today’s rates in the future,” says Mr Lamb.
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There is no compensation scheme for foreign currency providers that go bust. However, you do get a level of protection with companies that are authorised by the FCA because they have to keep your money separate from the company’s own cash.
Meanwhile, if you are planning to go overseas, download the TravelMoneyMax app, which suggests the best rates at foreign currency outlets.
Using your debit card may seem the simplest route, but you will pay a non-sterling transaction fee, typically 2.99 per cent, plus a cash withdrawal fee if you use an ATM. If you wish to swerve these “usage” charges, carry a Halifax Clarity credit card, but pay off your balance in full since this card has an APR of 18.9 per cent.
As many as 20 per cent of Britons fall victim to the dynamic currency conversion (DCC) heist, losing about £380 million a year. Under DCC, when you are paying a bill or withdrawing cash, you will be asked if you wish to pay in sterling or in the local currency. Always opt for local currency, or you will be stung for 3 to 10 per cent on top of the other charges; you will also receive a worse exchange rate. From next year the retailer, bank or restaurant will have to disclose the exchange rate to you.
To avoid these charges, consider using a prepaid card on to which you load up cash. They offer generous exchange rates and also the means to track your expenditure on an app. The best known pre-paid card is Revolut (revolut.com).
