Credit: Image sourced from ozforex.com.au
As exciting as it can be, moving abroad also brings an endless to-do list with it, and transferring money overseas is just one of the challenges you'll face as a new expat.
Failing to devise a plan for this early on can end up costing you unnecessarily, but what are the most important things to consider?
To get the inside scoop, I spoke to Michelle Nash who is a foreign exchange specialist and Regional Manager with the international payments service ClearFX.
Here she shares five tips for making smarter overseas money transfers.
1. Avoid the standard banking system
Most people tend to stick with their bank when transferring money abroad because it's easy and familiar. However, this could end up costing up to 5% more on every transaction, which can add up to a significant amount if you're dealing with regular transfers or larger sums of money.
So what's the alternative?
"An international payments specialist can offer you better exchange rates and often no fees," says Nash. She also points out that many companies provide access to online platforms and foreign exchange experts 24 hours a day, which can make the whole process easier.
"This is important because many people are either doing this for the first time or they lead busy lives and are only available in the evenings when their bank is closed," she explains.
2. Always compare exchange rates
By comparing exchange rates for the same amount at the same time, consumers are able to get an accurate gauge as to the possible savings between providers, and Nash notes that this is important with a live market like foreign exchange, where even a ten minute delay can make a big difference.
"Comparing rates in real time will allow people to know if they're getting the best deal possible, and depending on the size of the transfer it could save them thousands," she says.
"Exchange rates on international money transfers can be volatile and opaque which makes it hard for people to know whether the rate they are being quoted is a good one or not, and when you consider that some banks charge up to 5% in an exchange rate margin, people may be paying too much for their transfers without even knowing it."
3. Don't wait until the last minute
Another important aspect to consider is the timing-- since rates are constantly fluctuating, it can be difficult to get it just right, but putting the transfer off until the last minute is rarely a good idea.
"Given the volatility in exchange rates many people are being exposed to a great amount of risk without even realizing it," explains Nash.
"From the moment a person agrees to transfer a fixed amount of foreign currency, say US$10,000, they are exposed to the risk that the cost may rise. If they delay the transfer by a few days or weeks they may end up paying a lot more of their own currency than they first anticipated."
In order to remove this risk, Nash suggests locking in an exchange rate prior to transferring the funds to an international payments specialist. "This way, you will be completely aware of how much it will cost you and how much you will receive," she says.
4. Decide on a desirable exchange rate for large one-off transfers
The larger the transaction, the more risk you are exposed to, as the exchange rate can have a big impact on the overall cost. This can be especially frustrating if you're purchasing property abroad in order to benefit from the lower foreign price.
"Most people are busy and simply don't have time to watch the exchange rates all day, but a currency specialist can do this for them free of charge," notes Nash.
"By placing an order, you can instruct the specialist of a desired exchange rate, and should the market reach there, the rate will automatically be secured for you."
She also points out that when buying or selling a property overseas, once a deposit is paid, the local currency amount is fixed and due on settlement. However over the settlement period, which could be a few months, the amount that needs to be paid could vary greatly.
"As an example, a 10% movement in the exchange rate can make a $50,000 difference on a $500,000 property settlement," she says.
"To minimize this risk many clients choose to lock in an exchange rate ahead of settlement, which can be done up to 12 months in advance, using a forward exchange contract. In essence this secures the exchange rate now, but you can pay for it later."
5. Plan ahead for recurring international transfers
Aside from large one-off international money transfers, living abroad often also means making regular transfers, such as an overseas pension or mortgage payments.
Nash notes that while setting up recurring payments through online banking for domestic payments is something most people are familiar with, recurring international money transfers are less common. But, fortunately, they can be just as straightforward.
"Some foreign exchange specialists have developed the ability for people to set up regular payments for international transfers, so they have the ability to set future payments for the year ahead and lock in the exchange rate as well," says Nash.
"This means that regardless of exchange rate fluctuations over the course of the year, they have locked in the certainty of knowing how much they'll receive or pay every month."