3 steps to getting the best currency exchange rates
To be sure you are getting the best currency exchange rates, you must know what the current real market foreign exchange rate is and whether any upfront or transaction fees are applied to your transfer, including fees applied by the receiving back to the recipient's account.
Do your homework, compare, and never assume that your bank will provide a fair and competitive exchange rate.
SEND MONEY ABROAD AND CONTROL THE EXCHANGE RATE
What’s the market exchange rate?
Before you decide on using your own bank or any other FX provider, it’s worth your while to research what the current real ‘market exchange rate’ is. One way to get started with this is to Google the AUDUSD exchange rate or whichever conversion you’re after.
Most likely, you will be provided with links to Bloomberg, Reuters, Yahoo and many others. Choose one. It should tell you what the real current market exchange rate is. Notice, when you compare this rate to the one your bank is offering you, you will see a discrepancy.
For now, it’s just a good reference to proceed on your journey of discovery.
What is my conversion rate?
The fact is, most banks and FX providers will apply a fee, a margin or whatever they call it, to the real market exchange rate. The effective conversion rate that you will be receiving will be less by some margin.
For example, if you are looking to exchange 1,000 AUD and the current market exchange rate is 0.8000 USD per 1 AUD, you should theoretically receive 800 USD. Practically though you will receive fewer USD than that. How much less, depends if you are using a bank or an FX provider.
The average Australian bank will likely charge you as much as 44 USD (approximately 5.5% or an effective exchange rate of 0.7560 USD per 1 AUD) for the transaction.
In turn, an independent FX provider might only charge 12 USD (~1.5% or 0.7850 USD per 1 AUD).
That's a big difference.
What are these fees and commissions people talk about?
There will be different fees and it's best to know them upfront. All banks and most FX providers will charge an upfront transaction fees of anywhere between 5 to 30 AUD. It does not matter what you call them, it’s something that will cost you, in some way.
So, typically with a bank, instead of paying 1,000 AUD for the recipient to receive 756 USD, you will be paying 1,030 AUD. In terms of a currency conversion exchange rate, that's now 0.7339 USD per 1 AUD (756 USD / 1030 AUD) or a whopping 8.25% cost margin.
SEND MONEY ABROAD AND CONTROL THE EXCHANGE RATE
And to make matters worse, some receiving banks charge yet another fee to receive an international transfer.
Summary to get the best currency exchange rates
Don’t be fooled by clever marketing slogans. Put your knowledge to work. Ask your bank or payments provider to disclose up front:
- how much you will pay in AUD including all fees,
- how much the recipient will receive in USD including all fees deducted, and lastly
- the real market exchange rate, so you can compare for yourself
Then use your phone calculator to divide the net USD amount by the total AUD amount. This will give you your effective conversion rate. The further this number is away from the real market exchange rate, the worse the deal you are getting.
If you are struggling with any of the above calculations, never be afraid to ask someone for help. You stand to save a lot of $$$.
Check out Flash Payments where you send your foreign currency transfers
fast, secure and fee free, every time