Wednesday, October 26, 2011

5 Things You Should Know when Transferring Money Overseas

We all know that money makes the world go round, but what happens when you want to make your money go round the world? Typically it travels with high fees, poor exchange rates and a strong headwind. However, with these five tips you can avoid all of the expenses and delays which are normally associated with transferring money overseas.

1 – Use a Broker

Most of us can use our common sense and knowledge to figure out new tasks for ourselves, and this is how we learn. However, when it comes to dealing with money, this is not the time for trial and error, especially where international transfers – language barriers, time zones and delays – are concerned.

Therefore, if you are transferring money overseas using a currency broker can make the experience easier and more profitable. When you use a currency broker it is important to know that you can benefit from:

* A saving of between 0.5% and 4% on your transfers.
* Fast international payments, same day transfers in most cases.
* No commissions.
* No bank receiving charges.
* Personal service and your own dedicated broker.
* Access to products and services not offered by the banks.

2 – Types of Transfers

When you are transferring money overseas you should also know about the different types of transfers available through a broker:

* Spot contracts. If you have access to the funds in your account you can organise for a spot transaction which simply exchanges one currency for another at the current market price. The settlement typically happens in two working days and a broker can secure you the best rate.
* Forward contracts. Allows you to fix an exchange rate now, for a transfer date in the future. You can choose a date up to two years in advance and even if the exchange rate changes, you can make your transfer at the fixed rate you’ve already chosen.
* Currency options. Similar to a forward contract, you will be exchanging one currency for another at a date in the future, however with a currency option you can still take advantage of rate moves in your favour. Where a forward contract protects you if the rate moves against you, you are also stuck with your fixed rate if the current rate moves in your favour. Therefore, with a currency option you’re still protected from negative movements, but can also take advantage of positive moves.
* Regular payments. If you are going to be transferring a set amount of funds overseas on a regular basis – if you are paying a mortgage on an international property for example – then you can set up an automatic transfer for the exchange to be made on a set day or date.

3 – Give Yourself Time

Transferring money overseas isn’t like transferring it between accounts at home. There can be unexpected changes and delays in your transfer, so make sure you give yourself enough time to make the transfer effectively. For example, if you have left your transfer to the last minute and need to make the exchange quickly, you are at the mercy of exchange rates, and you may find you don’t have the amount you need to transfer because of the current rate. However, if you’ve got a period of time before the transfer needs to be made, you can wait out any negative exchange rate fluctuations.

4 – Fees and Charges To Be Aware Of

If you are transferring money overseas via a bank, you will usually have to have an account with that bank first before they will complete the transfer. A large portion of bank profits come from the fees and charges paid by their customers and international transfers are some of the most high fee transactions offered.

If you are travelling or moving overseas and want to transfer funds to an account in your destination country you may be tempted to try and avoid the fees of making an overseas transfer through your bank, by visiting a branch of your bank when you arrive. However, even though the branch of your bank operates in another country, it is separate from your bank at home, and this can not only incur the same fees for you, but you have to make sure you are completing the transaction correctly when dealing with an unfamiliar bank, in an unfamiliar country, probably in an unfamiliar language.

For overseas money transfers most banks will charge a minimum fee, as well as a commission on the transfer, on top of the standard currency rates.

5 – Methods of Transfer

Banks and brokers are not the only ways you can transfer money overseas, and these are some of the other main methods you should know about:

* Cheque. A cheque is slightly less expensive than transferring the money in a wire transfer through your bank, but it also slower and less secure.
* Western Union. Western Union can be found in just about every county around the world and offer a fast and reliable overseas money transfer service. The costs will differ depending on where you are sending the money, but the transfers through Western Union are typically good value. However, there can be high fees involved in the transaction, which you need to weigh against security and ease of use. You should also know that Western Union have loosened their security requirements to make transfers easier on the receiving end. The recipient no longer needs to show any ID, they simply need the 10 digit Money Transfer Control Number.
* PayPal. PayPal will take a percentage of each overseas transaction you make so the more you’re sending the more you will pay. PayPal are also a very secure way to transfer money overseas as you are keeping your own bank account separate.
* Xoom. Xoom deposits the funds directly into the recipient’s bank account if you are transferring to the US, and gives you a more professional appearance because you don’t have to ask the recipient to go into a branch like they do with a Western Union transfer. While you aren’t told what the fees will be until they appear on your bank statement, Xoom is very reasonably priced but they do use your bank’s exchange rate.
* MoneyBookers. MoneyBookers is a London based company with a similar system to PayPal, but with more affordable fees. They also cap their fees when sending money, and charge a set fee to receive money.

Alban has been writing about personal finance for the last 3 years. Although he specialises in online savings account comparison, Alban also writes about various personal finance topics.

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