Currency exchange can be done either with cash or using a money transfer.
While there is plenty of competition in the market, the costs can vary considerably.
For travel money, the currency exchange rates offered by the UK’s largest supermarkets (Tesco, Sainsbury’s, Asda) are some of the best in the market. For international money transfers, it can be a lot cheaper and easier to use a money transfer company than a bank.
The overall cost tends to be less for money transfers than exchanging cash.
However, money transfers can take several working days, whereas the cash transactions can be instant.
Another key difference is that there are maximum amounts of currency that you can exchange in cash, whereas money transfers don’t normally have any size limits.
Getting the best currency exchange rate
Whether you are looking to exchange currency using cash or a money transfer, the aim is the same.
We all want to get the best rate possible and avoid paying any nasty fees.
Most people will have exchanged currency before for travel purposes and seen one of those foreign exchange boards with a bunch of different rates listed in red.
You may have noticed there are two columns - a buy price and a sell price.
The gap in the middle is known as the ‘spread’.
It’s basically the profit margin being taken by the provider.
As a customer, you want that gap to be as small as possible.
At airports, the difference between the buy and sell rates can be scandalous.
I’m talking about 15%-30%!
That means you are giving away 15%-30% of your money just in exchange rate costs.
I will state the obvious: avoid airports for currency exchange.
It’s a lot cheaper to order ahead (if you remember).
The big UK supermarkets are a handy place for cash-based currency exchange. The rates at Tesco, Sainsbury’s and Asda, are consistently some of the best around.
I have reviewed travel money rates offered elsewhere, and while it is possible to get better rates, I’ve found the financial difference is not significant.
And the major supermarkets are a convenient way to exchange currency for most people.
By the way, a word of warning about comparison sites. They can be misleading.
Some of them sort their tables in order of their “affiliates” first (think juicy kick-backs) and grey-out or not list legitimate providers because there’s no money in it for them.
They’re not the independent sources of information that they claim to be and they add another indirect layer of cost.
Currency exchange for money transfers
Money transfers are bank-to-bank international payments.
They are also known as telegraphic transfers, wire transfers, or international money transfers.
These are more suited for things like buying a property abroad, making a foreign investment, paying overseas business suppliers, expats repatriating their salaries and savings, and people emigrating to another country.
Fortunately, the exchange rates for money transfers tend to be a lot better than for cash transactions.
For a money transfer, you have two options:
- Use a bank
- Use a money transfer company
While your bank might seem like a more obvious choice, it could cost you a lot more in fees and exchange rate charges.
The fact is banks don’t specialise in currency exchange – it’s just one of their many products and services.
As money transfer companies specialise in money transfers, they can provide a more tailored service with more efficient procedures at a lower cost.
Watch out for hidden fees
Banks being banks, they have found ways of adding on an assortment of fees for international money transfers.
The banks can hit you for transfer fees, correspondent bank fees, priority payment fees, and fees should you want to amend or trace your transfer.
What’s even more frustrating is it’s difficult to know exactly what you’ll be charged until after the event.
That’s because the Tariff Schedules produced by banks are so long and complicated – often running for 15-20 pages. Somewhere buried in there is the answer you’re looking for.
I’d imagine most customers only find out what they’ve been charged when they look at their statement – at which point it’s too late.
Some money transfer specialists, such as ourselves, don’t charge any fees for international money transfers.
We make our money only from the exchange rate.
It makes it easy for a client to know precisely how much money they will receive.
Don’t forget to check the rate
Exchange rates are by no means standardised.
Banks and money transfer companies will set their own exchange rates by adding a margin onto their wholesale rate.
Banks typically charge in the region of a 2%-5% exchange rate margin.
The exact rate you get charged will depend on the amount of money you transfer abroad.
Typically, the bigger the amount, the better the rate.
The margin can also vary depending on which currency you need.
Popular currencies like Euros and US Dollars tend to have slightly tighter margins than other more volatile or less traded currencies.
While a 2%-5% margin charged by a bank may not sound like much, it can be eye-popping on larger amounts.
For example; say you are looking to buy a property in France and your budget is £120,000.
When it comes time to pay for your property in Euros, your bank charges you 3.5% in exchange rate costs.
Well, that works out at £4,200 taken just in exchange rate costs.
And they’ll also have the cheek to charge you a bunch of fees too.
It’s a lot of money to forgo when you consider the service you’re getting.
From my personal experience, the banks increasingly take a hands-off approach.
The banks won’t help you set up your payment, discuss current exchange rates, or keep you informed as your money is in transit.
It’s a bare-bones service charged at a premium price.
Which is why it makes sense to consider your alternatives.
Money transfer specialists can often significantly undercut the banks in terms of currency exchange.
And you should also find the whole process a lot easier and hassle-free as the staff at money transfer companies are far more experienced and knowledgeable about exchange rates and money transfers.
How a Money Transfer Works (in 4 simple steps)
Money transfers can be explained in 4 steps – the final step is the currency exchange part.
Step 1 - Identification check
No one likes ID checks, but they are a required part of sending money abroad.
There is a worldwide effort to stop money laundering, so all new customers need an ID check.
Fortunately, for UK citizens, it is normally straightforward and done within one working day.
Step 2 - Secure an exchange rate
When you are ready, you can request a live exchange rate from your money transfer company or bank.
If you are happy with the quote and give your permission to proceed, your rate will be locked-in (fixed) at the point.
Step 3 - Send in your money
With a money transfer company, you have the advantage of being able to send your money in before or after you secure an exchange rate.
You might see a great rate and want to secure your rate before you have the time to send the money. Or it can be useful to send in your money upfront to speed up the end-to-end process.
Note – a bank will require your money to be in your account before they will secure a rate for you.
Step 4 - Your currency is exchanged
Once your money transfer company or bank has received your money, they will exchange it into the currency you need at the exchange rate agreed.
It is then sent to the bank account of your choosing (the beneficiary) using the SWIFT payment network.
Whether you use a bank or money transfer specialist, it will go via the SWIFT payment network.
SWIFT is a secure global system that links up banks around the world. It has been criticised as being too slow (money transfers generally take 2-4 working days), but it is safe and reliable.
That’s the process in a nutshell.
Is there any difference between money transfer companies?
I appreciate that it’s not easy for a customer to choose between money transfer companies.
There’s lot of them.
And they can all look the same on the surface.
But there are some fundamental differences.
Some specialise in ‘micropayments’ to friends and family.
These are the remittance companies like Western Union, MoneyGram, WorldRemit, Azimo, and Remitly.
Then there are a bunch of ‘do-it-yourself’ platforms or ‘apps’.
You set everything up and enter all the details yourself. Their online-only systems, with no human contact.
In this group you have PayPal, Transferwise, CurrencyFair and Revolut (and plenty of others).
From my experience, these online apps tend to be popular with small merchant payments and a younger demographic.
There are also money transfer companies that are also known as currency brokers.
They assign you an account manager who can help set-up your payment details, offer you guidance on exchange rates, and keep you informed throughout the process.
Key Currency fall into this camp.
This type of service is more suitable for larger amounts, where timing, costs, and security are top of mind.
If there is ever a problem or question you have, you can call and speak directly to your account manager.
The right option depends on your situation and your preferences.
One additional check I would suggest is to make sure the company you choose is Authorised by the Financial Conduct Authority (FCA).
The reason this matters is because FCA Authorised companies must safeguard client money in a segregated bank account.
The easiest way to find out if a company is Authorised by the FCA is to type their name into the Financial Services Register. Most of the time you can also find their regulatory status in the footer of their website.
Key Currency is a leading money transfer specialist.
The way we operate is fundamentally different from the remittance companies, banks and online-only ‘apps’.
We discuss and understand your individual requirements and help you exchange your money at the right time by taking advantage of any moves in your favour, rather than having to accept whatever rate an automated programme tells you on the day.
Our currency exchange rates are highly competitive, and we charge you no fees. It’s a more transparent way of doing business.
Key Currency is an FCA Authorised Payment Institution (Financial Services Register register No. 753989). All money transfers are conducted through safeguarded client accounts held at top tier banks.
We have attained a 5-star ‘excellent’ rating on Trustpilot, based on over 700 genuine customer reviews.
If you would like more information or a free currency exchange quote, simply click on the button below.