I will explain what a currency broker is, how they differ from banks, whether they can be trusted, and how to find the best currency brokers in the UK.
What is a currency broker?
A currency broker buys and sells currencies directly for customers and transfers the money internationally.
Currency brokers go by different names.
Sometimes they are also called foreign exchange brokers, currency exchange companies, or money transfer companies.
Regardless of the different financial jargon used, they are all doing the same thing…Exchanging your money into a different currency and sending it to a bank account in another country.
You may also come across forex brokers or fx brokers. They should not be confused with currency brokers.
A forex broker provides a trading platform for customers to speculate on the movements in currency pairs for the purposes of profit (or loss). They don’t exchange and move money for you.
How does a currency broker make money?
There are 2 common charges made by banks or currency brokers:
1. Exchange rates
There is no such thing as official exchange rates. Most of the exchange rates you see online are wholesale “interbank” rates. They are not actually available to consumers.
Each currency broker or bank will offer you a different exchange rate based on the currency you need and the amount you are looking to send.
The broker or bank will make their money on the difference between what they bought the currency for (wholesale) and what they sell the currency for (retail). It’s no different from a supermarket.
However, unlike a supermarket, wholesale currency rates are changing constantly throughout the day – every few seconds normally.
The broker or bank may have fluctuating margins as they source their currencies from different providers. So, it’s not just a case of a fixed wholesale price, and it won’t correspond to the free ‘teaser’ rates you see online.
When you get an exchange rate quote from a currency broker or bank, it will include a mark-up (or ‘spread’) on top of the fluctuating wholesale rate.
2. Transfer fees
These fees vary considerably between banks and brokers.
A transfer fee is normally a flat amount that is charged per transfer, and is in addition to the money made from the exchange rate.
Almost all UK and European banks and even some currency brokers will charge you a transfer fee every time you send money abroad.
The transfer fees are normally in the region of £10 to £25 per transfer.
A trick used by some banks is to charge you twice for the one transfer – by having a fee for the sending and receiving bank.
However, you can avoid transfer fees altogether. That’s because some currency brokers, such as Key Currency, charge no fees at all.
Banks and currency brokers compared
If you need to send currency abroad, you have a choice whether to use a bank or a currency broker.
Behind the scenes, whether you use a bank or currency broker, your money is sent using the same international payments systems – SEPA within the EU and SWIFT for the rest of the world.
There is no extra security when using a bank, but there is an extra cost.
As a general rule, banks charge up to 4%-5% for currency transfers.
It depends on the amount you send, the currency you need and the bank.
Currency brokers will normally cost a lot less - but you request a quote to get a direct comparison.
For decades, banks had the foreign exchange market to themselves.
Customers had no choice but to use a bank. There was no point shopping around because all the members of the ‘banking cartel’ charged high fees.
Thankfully, times have changed.
Banking and finance have largely moved online.
The ‘cosy club’ of big banks can no longer sit back and rely on their branch network to monopolise markets.
In fact, banks are now uncompetitive in many areas due to their enormous overheads.
The annual running costs of Lloyds, Barclays, Natwest and HSBC is in the billions.
Despite the excessive costs, some customers will continue to use their bank no matter what they charge.
But many more people are fed up with being ripped off and are using alternative providers that are cheaper and more efficient.
A currency broker can provide:
- More competitive exchange rates
- Lower (or no) fees, and
- Hands-on help and guidance
And because currency brokers are focused solely on money transfers, they can process and execute transfers faster than the cumbersome banks.
Some currency brokers, such as ourselves, even offer customers guidance on exchange rates and personal assistance in carrying out their transfers.
The customer gets a better deal all round.
5 reasons why you really shouldn't use your bank...
- It's not their area of expertise
- Their exchange rates are uncompetitive
- Banks charge transfer fees
- They won't help you with exchange rate timing
- You are not their priority
Can you trust a currency broker?
These days, you can normally find out a fair bit of information about a company online.
The first thing I would look at is customers reviews.
I'm sure some companies fake their reviews, but you can normally tell if reviews are real or fake.
Also take a look at the currency broker's website and see if the people behind it are shown. I personally steer away from companies that hide behind jargon.
You should also ensure that any currency broker you use is Authorised by the Financial Conduct Authority (FCA).
The reason Authorisation by the FCA is so important is because it means your money will be segregated from company funds and held in a safeguarded client account.
In basic terms, your money will only be used to carry out your transfer.
If a company is NOT Authorised by the FCA, I would give it a miss.
Why take the risk? I certainly wouldn’t, no matter how big or small the amount involved.
My advice is simple – to ensure your money is safe, only use currency brokers Authorised by the FCA.
To check whether a firm is authorised, you can search for its name on the FCA register.
Are all UK currency brokers the same?
The simple answer is NO.
When you first look online for currency brokers in the UK, it can be overwhelming.
It can seem like you have endless choice.
I know it's not easy (in any industry) to narrow down the field.
But I can assure you that there are some key differences you should be aware of.
As I mentioned earlier, some currency brokers are Authorised by the FCA; others aren’t. That’s important for the safety and security of your money.
Also some currency brokers are focused on individuals (personal transfers), while others are geared towards businesses who have overseas payroll and suppliers to pay (corporate transfers).
The most important difference is whether a currency broker provides a service, or is it really just an online platform?
There are a growing number of online-only providers who offer “do-it-yourself” transfers, such as Transferwise, CurrencyFair and Revolut.
They may suit people who are happy to go online or download the app and enter in all the information in themselves.
But not everyone wants to do that.
From my experience, if you haven’t done many international transfers before or you are looking to send a larger amount, you want to be able to speak to someone.
Here are 3 reasons why...
1. You want all the details checked over.
One common area for mistakes in international money transfers is with the beneficiary details (where you want your money sent).
It’s why we do a double-check to prevent problems.
Plenty of places leave you to your own devices, and inevitably mistakes happen and money goes missing. We hear it all the time from customers who have dabbled with the online platforms.
It can take a long time to recall missing funds from foreign banks, so prevention is better than cure.
2. Guidance on exchange rates could save you a lot of money (and stress).
Exchange rates change every few seconds.
It probably isn’t the best use of your time or energy to watch exchange rates move around all day; trying to decide when to pull the trigger.
While no-one has a magical crystal ball, you may find it very useful to speak to someone who is familiar with the daily patterns in rates and is aware of upcoming news and events.
Bear in mind that even small, fractional moves in exchange rates can have a big impact on the amount of money you will receive.
A 0.75% swing in the rate on a £50,000 transfer would mean a £375 difference to you. Swings of that magnitude happen every week.
A currency broker can work with you to achieve a favourable rate and avoid risk.
3. You want to know what’s happening with your money.
No one wants to be left in the dark.
People want to know when their money has arrived at their currency broker and when it’s been sent out.
A currency broker can steer you through the process, keeping you informed at every stage.
How to find the best currency brokers in the UK
I’ve been a customer too, so I know it’s hard to get solid information on the internet.
It’s no longer a case of looking through the Yellow Pages for A.A.Abraham Currency Brokers.
Finding the best currency broker in the UK comes down to trust, transparency and value for money.
Knowing a currency broker is Authorised and Regulated by the FCA should give you a degree of trust.
So you know – attaining Authorisation is not a walk in the park – it requires all kinds of checks on the directors' backgrounds, the company’s financial position, the systems and controls and the compliance procedures.
Another easy way you can assess trustworthiness is to read through customer reviews. How many are there? How frequent are they? How good are they overall?
In terms of transparency, I always assess how upfront and open a company is on their website. Do they show the names and face of the Directors and staff?
I have noticed a lot of foreign currency brokers hide behind a generic mission statement or a bunch of meaningless financial jargon.
Some of them don’t even have a profile picture on LinkedIn.
Why? Because they don’t want their customers to know who they are. Speaks volumes.
There’s an expression by Warren Buffett “Price is what you pay. Value is what you get.”
I know we work hard every day to give our customers a better deal on their money transfers. If you have a currency requirement, the best way to get a live exchange rate is to request a quote.
Currency brokers offer an alternative to banks.
The main benefits of using a currency broker are:
- Competitive exchange rates
- Low or no transfer fees
- Faster transfer times
- Guidance on exchange rates
- Making things simple for you
If you need to transfer money overseas, it can be a lot cheaper to use a currency exchange broker than a bank.
For larger amounts, it could 4%-5% of your money using your bank.
Key Currency is a leading UK currency broker.
We can help you achieve a great exchange rate and won’t charge you any fees on your transfers.
Our aim is to take the stress and hassle away from money transfers by doing all the hard work for you.
As part of our service, we can discuss and agree on the right time to exchange your money, and you can speak to the same person at all stages of your transfer.
We have gained a 5-Star “excellent” rating on the customer review site Trustpilot based on over 500 individual reviews.
Key Currency is an FCA Authorised Payment Institution (No. 753989). You have the peace of mind knowing that all money transfers are conducted through safeguarded client accounts.
We serve clients based in the UK, Europe, Australia, Canada, NZ and the Middle East.
If you feel our service could be of use to you, please request a free quote below.