Whether you make the occasional purchase with foreign currency or send money overseas regularly, we all want to get the best exchange rate possible with the lowest fees. That means more of our money ends up with the recipient – or we save money in the process. No matter where you sit in terms of sending money overseas, here are some sure-fire tips to save when sending money overseas.
Know the difference between “buys” and “sells”
Foreign exchange happens when you “buy” a foreign currency and “sell” your own currency to a bank in exchange. The aim of getting the most value is getting lowest “buy” (or bid) price and selling for the highest “sell” (or ask) price. Usually if you use Google or other foreign currency market tickers, you will get the “mid” price – what’s in between the buy and the sell price. If you do a straight conversion using that mid-price, you will not get the complete picture. This can be especially disastrous for businesses relying on foreign currency exchange.
Never use your credit card
Though it’s convenient, you shouldn’t use your credit card when making foreign purchases. First off, as this is a “cash advance” payment, an extra 2–5% charge will be added to the transaction. You’ll also pay more because credit card processors will put through the transaction with the highest “buy” rate. Also, you may pay a 1-3% foreign transaction fee. As you can expect, this will result in a significant increase in the price of your purchase, regardless of the offer. Pay with cash or with a debit card to avoid these added costs. Oh – and avoid buying at airports, too!
Use an international money transfer service
By providing more flexible choices than banks or credit cards, you may want to consider international money transfers by a dedicated transfer service. These companies assist you in keeping as much of your money as you can. Comparing low-fee banks to foreign exchange agencies, fees are frequently lower or set at zero. To guarantee you receive more of your currency on the other side of the transaction rather than paying you whatever the market has established at the time, they may even execute orders like “stop loss” or “limit price” so you get the best buy and sell prices possible. They can also help you with compliance, as some countries limit the amount you can send overseas without attracting government attention.
Buy low, even if you aren’t sending immediately
It may be feasible to mitigate your foreign exchange risk if you anticipate sending in the future. Imagine, for instance, you know Diwali is in November 2023. Perhaps in March the Indian rupee is at a six-month low. It may be prudent to buy Indian rupees in March and hold on to them until November when you’re ready to make a transfer to India. If you aren’t sure, making smaller currency purchases below a certain level can also work to save money.
In this manner, you may effectively spread out your exchange risk by making certain purchases while the pound is strong and other currencies are weak. Make sure you are not being charged additional foreign currency costs for each transaction if you want to choose this route.
Remember to shop around and get advice from a professional before making big foreign currency purchases.