Check the exchange rate before you change currencies

7 November 2016
Australians send more than $2 billion overseas every year and the main cost associated with that transfer is likely to be the exchange rate you get on the transaction. On big sums of money it adds up to a big difference…

When it comes to making an international money transfer there are generally fees involved. Something that’s almost a hidden fee though is the exchange rate that you get on your transfer. This is often where the currency suppliers make most of their money!

When exchanging many thousands of dollars into a foreign currency, in most cases the exchange rate is going to be the biggest hit to your transfer.  And don?t be tricked by exchange rates quoted on the nightly television news: these are wholesale rates, available only to banks, governments and large corporations.

Normal customers buy and sell foreign currency at a retail rate. These rates are based on the wholesale rate, plus a margin. Each currency broker makes their profit on the “spread” or “difference” in that rate. This margin varies considerably between banks and foreign exchange brokers. Some may give you less for your foreign currency but will charge you more to buy it.

While you cannot effectively control this “hidden fee”, it pays to know what to expect when shopping around for the best overseas currency rate deal.

As an example, the table below shows the RBA Headline rate (the wholesale rate), as well as the  minimum and maximum exchange rates offered by the 19 ADI and non-ADI institutions in our 2016 International Money Transfers star rating, captured over four weeks and then averaged over the prescribed period (15 August 2016 to 8 September 2016) for a number of currencies. The final column shows the difference, between the minimum and maximum rates based on a $100,000 overseas transfer.

Currency RBA Headline Rate Highest Quoted Rate (Selling Rate) Lowest Quoted Rate (Selling Rate) Difference on a $100,000 transfer
EUR 0.679 0.664 0.638 2,616 EUR
GBP 0.580 0.567 0.544 2,276 GBP
USD 0.762 0.749 0.720 2,888 USD
CHF 0.741 0.725 0.692 3,310 CHF
HKD 5.911 5.806 5.567 23,881 HKD
INR 51.008 50.026 47.996 202,943 INR
JPY 77.460 75.885 72.221 366,362 JPY
NZD 1.046 1.024 0.994 2,965 NZD
SGD 1.031 1.010 0.972 3,869 SGD
NB: The RBA apply the mid-points of buring and selling rates as the published/head-line exchange rate. Margin rounded to 2 decimal points.
The exchange rates for the 19 institutions in our rating are captured over 4 weeks and then averaged over the prescribed period (15 August 2016 to 8 September 2016)
Source: Canstar

 Our tip?  Set aside plenty of time to make a short list of providers and check their rates over a number of days before choosing who to finally go with.

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