At AJ Financial Planning, we are often contacted by clients who are:
- moving back to Australia after working abroad
- about to move overseas to take up a job opportunity
- relocating to retire in a country that has a lower cost of living, or
- moving retirement benefits or investments either to Australia or elsewhere as part of their relocation strategy.
Moving a large amount of money between countries can be a nerve-wracking process. Often people use their local bank for this type of transaction. The main benefits of doing so are that it is a relatively simple process, and they are dealing with a financial institution they feel they can trust.
The reality, however, is that they may find themselves being gouged anywhere between 1 to 10% on the cost of the foreign currency transfer.
Let’s start by asking why do banks charge so much? It comes down to what is known as the ‘interbank market’. Think of this as a ship that leaves port and the cargo on board is your cash. It is en route, say, to the UK and along the way it might stop at a number of ports in other countries before finally getting to Dover in the UK. Each time it stops at a port, it has to hand over some of your money. The interbank market is very similar in that it is a range of associated banks moving funds all around the world. Sometimes it goes directly from one bank to another; other times it might need to be routed via a number of banks to get to its final destination.
In some instances we have seen clients who were wanting to move a large amount of funds and their local bank or overseas bank indicates they will likely charge them up to 10% of the capital. In these situations, this could have cost our clients anywhere from $10,000 to $100,000, depending on the amount of the transfer.
So are there better, cheaper ways to move money? Over the years, the foreign currency (FX) market has evolved and today there are a number of alternatives available.
It does depend on how much you are trying to move, of course. The additional complexity may or may not be worth the headache, depending on your situation. sLet’s look at two soptions:
- A number of intermediaries now provide specific FX services independent of banks. An example of this type of provider might be OFX. Essentially, OFX works as an intermediary. So you would push your AUD or nominated currency into this FX provider, and then the FX provider handles the exchange on your behalf at an agreed rate. These funds are then deposited into your nominated account.
- If the transaction is large enough, you could consider establishing a stockbroker account through Interactive Brokers or another FX broker, and then trade the FX over a period of time at the most opportune times for a cost-effective FX conversion to maximise the amount you ultimately receive.
If you are thinking about making an FX transfer, spare a thought to how much this might cost.
It is important before deciding on a provider to ensure that they are of sound backing and have a strong reputation in their field. The ones mentioned in this article are just illustrative in nature and we neither endorse nor recommend that the reader uses these providers.
Any FX transfer is complex in nature and would require substantial consideration before executing. We would recommend that you obtain advice from a suitably qualified financial planner and, of course, we recommend AJ Financial Planning.