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!)