Foreign Exchange

As a bunch of you asked for it, my recent discovery on moving large ($10K+)  chunks of money from British Pounds or Euros to Dollars (and back).  (For smaller amounts, I’m told PayPal works well but I haven’t tried it.)

Here’s the challenge I have had:  if I want to move it from a bank in the UK to a bank in the USA, I have to go through a complicated process to initiate the movement – often requiring me to be in the country where the money is, which is rarely where I am.  So I am in the bank’s office in London, or on the phone with them at 3am, and go through an hour of bureacracy (ID checks, paperwork, waiting) until the money is ready to be wired.  Then, they call their exchange desks and come back with a rate, and it sucks: if the spot rate is 1.65, they have offered me 1.58, which is terrible, I could do almost as well walking up to a stupid Thomas Cook booth for crying out loud.  But what am I to do – I have hours invested here, they have me hostage!  If I send the money into my US bank in a not USD format, again I’m hostage to whatever rate they give me.

I thought I would solve this problem by switching to HSBC, who had branches in both countries, but it didn’t work.  I can move it through their website, theoretically, but the rate is terrible there too.  So recently in London, I went into a branch to move money from my UK HSBC account to my US one.  That simple transaction took 90 minutes to arrange, at the end they called the spot desk, and you guessed it – offered me a horrible rate.  Once again, with 90 minutes invested already and needing to get the money moved, I took it – gee thanks, $3000 service fee for moving my money.

OK, thanks for listening, that was therapeutic.  Anyway.

Charles MacGregor pointed me to a website, FXCompared, which will compare rates for a class of companies I didn’t know existed – third party exchanges for this kind of big money move.  They apparently cropped up because so many Brits were buying property in Spain and needing to move the money.  (Sorry guys, that probably didn’t turn out so well.)  I got pointed to, and used, a service based in Los Angeles, CA called Venstar Exchange, which seems legit as far as I can tell and hasn’t stolen my money yet.

Here’s how it works: you file paperwork and open an account, and give them a credit card.

When you want to move money, you contact them with the recipient details and amount.  They will confirm and then email back a rate to you.  In this case, they charged me 1.4429 dollars for a euro, when the spot rate was 1.434, which amounts to $89 for each $10,000.  The rate my bank offered amounted to $613 for each $10,000.

How they solve the rate fixing dilemma is really cool.  Normally you can’t get a rate quoted unless the money is ready to move right now, so the bank has no exposure to fluctuation.  But it’s also why your bank can hold you hostage: they’re the only one with your money, so they’re the only one who can quote you a rate.  So they fund free checking off your exchange rate back.

If Venstar forced me to wire them the money before quoting me a rate, we’d be in the same spot.  But instead, after taking my transaction details, they email me a rate that’s good for 10 minutes.  I can reply and lock that rate in if I like it, and then wire them the money the next day.  Because they have my credit card, if I never send the money, they would then unwind their position in the currency, and charge the delta between my rate and what they ended up unwinding at to my credit card – likely only a few basis points, so you can do this for wires up to $150K with any credit card.

So I wire them the money, and they convert it to Euros and wire it on to the destination.  In this case, I was able to send $42,000 into 28,000 Euros, for just $373 in exchange losses from the spot rate, and a $30 wire.  Which would have costs thousands if I let my bank do it.  Hopefully when Neil and Danny are done with it, it will come back in multiples (and if only I could crush their management fee down proportionally!)

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Written by Josh Hannah
Josh Hannah joined Matrix Partners after a career as a serial entrepreneur (Betfair, eHow, wikiHow.) Read more about Josh.
  • chrisharvey94

    I really feel glad after reviewing this post. Actually i am newbie for Currency exchange knowledge. I gain good knowledge from post and learn many aspects regarding to currency exchange.
    forex

  • http://www.aaronklein.com/ Aaron Klein

    That is awesome. Thanks for sharing.

  • http://twitter.com/BrandStar_Me Lynn Kingelin

    Great insight, thank you. I have been moving money to the US from the UK for years and mostly a few thousand at a time. I appreciate your angst. I've tried many services as well. HSBC has been my choice for about 3 years for moving money because it is online, I can do it without help, it is a flat fee and the money arrives the same day.

    I think you might be missing something elegant that works really well with HSBC that you may not know about.  With an HSBC personal account there is a feature on the left hand side of the screen once you are looking at your 'money mover' account that is called 'send money overseas.' You only get this rate if you initiate the transfer online yourself and you must complete the transaction before 2pm. They charge a flat rate of £9 for under $10K USdollars and £17 for over. There is a standard $25 fee at HSBC in the US clearing house that is not found anywhere in the paperwork(and probably deserves a class-action suit for non-disclosure), but I always(really, I do) receive my money in my non-HSBC US account within a few hours. The bank on the other side will most likely charge you as well, but you can have the recipient incur the cost by ticking a box.

    It is one of my treasured finds in the nightmares of consumer banking.
    Try it again and best of luck

  • joshhannah

    I will give it another try. The fees seemed fine, but when I checked, the rate they offered was pretty terrible. I also had another complicating issue — I have a trust and the UK doesn't handle trusts well, so my UK account has to be a business account, and business accounts can't access that global panel you discuss, and moving the money from my UK business account to my UK personal account took… 90 minutes for the rep in the branch, if you can believe it. UGH!

  • Gooitzen van der Wal

    Thanks for the input!! – Might use this to pay for my daughters Tuition at U. Edinburgh from US bank.

  • joshhannah

    Please note I am currently on vacation, returning to the office on Tuesday, September 6th. If this is an urgent matter, please contact my assistant, Greta Harrison, at gharrison@matrixpartners.com<mailto:gharrison@matrixpartners.com> or 650-798-1600. Thanks.</mailto:gharrison@matrixpartners.com>

  • http://www.zoneforex.info/ FOREX TIPS

    In my rush i think I'm a little off too, but my point is that Supply and quality are determining factors of historically higher value of currency in economies. Inflation is caused by manipulation of money supply. @STEPHANI :)

  • http://twitter.com/BernieReit Bernhard Reiterer

    Very interesting article, thanks for that! Having recommended similar services quite a couple of times now, I’ve been always wondering why so few business people know about those online FX houses and still stick to the traditional bank channels with their awful exchange rates. Even established mobile top up networks fail to save money when moving currencies. Wondering how this could be changed…



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