Stop Banks from Cashing in on Your Overseas Transfers  

Many British ex-pats in Spain send or receive money to or from the UK and in the process they unintentionally lose money. In some cases, loses can be up to tens of thousands! This special 4-part series has been written to outline how the bank-to-bank international payment process works, the specific areas where ex-pats are losing money and definite actions that can be taken to mitigate losses.

Initially, most ex-pats are introduced to the international payment process when they make a payment or payments from the UK to Spain for a property purchase. The general series of events consists of the property buyer putting down a deposit and then sending one lump sum or a series of staged payments from their UK bank to a solicitor's account in Spain.

Once a buyer becomes a fortunate Spain homeowner, their international payments tend to become smaller and sent on a regular basis. Many Brits receive their UK pensions, investment payouts or funds from savings through UK bank to Spain bank transfers. And in some cases, many Brits send funds to the UK for mortgage payments or to top up their UK funds for visits.

Whether transferring large or small funds, either internationally or on a regular basis, it's the same procedure. The person making the transfer instructs their bank to send the amount due to the beneficiary's bank overseas. When calculating the amount due in the overseas local currency, the bank will instruct the buyer of the cost and they will be debited accordingly. Within 5 days of instructing the bank, the funds in the designated currency will arrive and clear at the overseas destination.

The actual process of moving money isn't rocket science  however, the commission, currency exchange rate and fee structure imposed on clients by the banks can be extremely confusing.

And through this confusion, the banks are able to relieve clients of substantial sums of money without them even realising it. The Sunday Times (5 Feb 2007) reported that:  Britons buying property abroad could have lost out on up to $1.8 billion because of high-street banks offering such a poor deal on foreign exchange, according to new research.

Before I explain how the banks make their billions on international currency transfers, let me explain what the interbank rate is. The interbank rate is the price banks trade between each other when they�re moving millions. When rates are announced on the News, on Internet ticker tapes or in the newspapers, they are not the rates that you or I can actually buy at, but they are the rates the banks use between themselves.

Even though you can never buy currency at the rate quoted on the news, the interbank rate gives you an indication of where the rate is and what direction it's moving in. It also gives you a rough idea as to how much currency will cost you.

When you do decide to buy currency or make an international payment the institution that you do it through will put a mark-up over and above the interbank rate. So if the interbank rate for a pound is equal to 1.12, you should expect to buy Euros at a discounted price of 1.09, the difference representing the mark-up.

Below is the amount added on top of the interbank rate when purchasing from the following institutions:

- Banks  they'll charge you up to 5% more for popular currencies such as the Euro and US$, and up to 9% for less common currencies

- Credit Cards  up to 7% more

- Airport Currency Shops could be as much as 10% - 15% more

The one institution that I didn't mention above is that of an International Payment or Currency Exchange Specialist. For bank to bank transfers (which means electronic transfer of funds and not physical cash), they add a mark-up of 1% (on average) over and above the interbank exchange rate. Compared with the mark-up supplied by the banks, that's an instant 4% saving. On a 100,000 transfer that's a reduction of 4,000 by using a currency specialist rather than a bank! And on a regular payment of 1,000 a month that's a saving of 40 a month or 480 a year!

Poor exchange rates are only one of the ways that the banks make extreme profits from their clients.