Why Exchange Rates Are So Important For Expats!

Let's Talk About Exchange Rates...

If I began to add up the currency exchange commission that I've paid over 20 years as an expat, then I'd probably cry. I'm sure that many of you feel the same and I know that things have got better over recent times.

And we're going to talk about that later.

Though, banks are still at it, they're still gouging us on international transfers. Which is surprising given the competition that they face these days.

Recently we'd had two clients paying premiums from another currency. They ended up paying fees around 10% of the transfer amount. Yet no one was owning up to it.

So we want to take a look at this topic and how it effects every expat in some way or another.

Now some of you might be saying "It's simple just use Wise".

From what we've seen it's clear that many of you don't fully understand Wise. You think that they're one thing when actually they're something else.

Though for now that's enough on that topic for the time being, we'll explain in more detail later...

So here's what we're going to cover today:

• We're going to show you why exchange rates are important to expats.

• Then we'll give you a quick overview of what's involved when you move from one currency to another.

• After that we'll move onto the factors that can impact currency exchange rates.

• And finally we'll show you some ways to get the lowest cost FX rates and international transfers.

So let's get going...

But wait a second, before we do that though, let's have a quick look at this...

Sound financial planning starts with protection. As an expat you can find that your life insurance isn't going to do what it should.

So, here's an opportunity to get a copy of our...

"Expat Life Insurance Confirmation Pack".

It's completely FREE and has resources to help you confirm your life cover still works. Plus it gives you a step buy step guide of how to do that and gives you questions that you should be asking.

So CLICK the image below and get your's NOW!

So, Why Do Exchange Rates Matter So Much If You're An Expat?

When you become an expat, at some point you're going to end up using more than one currency.

Whether it comes into play if you're paying expenses back home or paying living costs in your new home. Currency exchange is going to play a part in your day to day life in one way or another.

If you don't find a cost efficient way of dealing with it then it could make a big dent in your finances.

We recently had one of our clients pay their Sterling insurance premium using US dollars. Unfortunately 10% of the money sent went in fees meaning that the premium was short. Another transfer had to be sent to make up the difference.

Imagine getting hit with 10% every time you moved money from one currency to another.

That hurts, Right?

It isn't only the cost of currency exchange that can have a big impact on your life. Currency movements themselves can create financial strife for you.

Back in 1997 the Asian Financial crisis had a pretty big impact on the expat communities in east Asia. In Malaysia the Ringgit fell by almost 50% and it was even worse for some other countries around the region.

This resulted in a mass exodus of the expats who were working in East Asia at that time.

Why?

Well, if you were earning in local currency, immediately you'd taken at least a 50% pay cut. The commitments that you had back home had doubled an you were struggling to pay them.

On the other side if you're earnings were in one of the major currencies (e.g. US Dollar). Then almost overnight you became twice as expensive to your company. Which most often meant that your local employer had to let you go and as fast as possible.

So, this is why currency exchange matters to you as an expat. It isn't just about getting the best rate on your holiday spending money anymore.

This can have a massive impact on your lives!

Now let's move onto what's involved when you move your money from one currency to another.

A Quick Overview Of Exchange Rates

You send money from your local account back home to cover some expenses. What's involved in that process of moving from one currency to another.

For starters currency rate quotes are in pairs two currencies linked together. The relationships between these pairs are independent of each other. For example what the US Dollar is doing against the Euro is different to what is happening in relation to the yen.

You'll see these relationships represented like this, EUR/USD or USD/JPY. The first currency in the pair is the base currency the second is the quote currency.

The exchange rate shows how much quote currency it takes to buy one unit of the base currency.

There's usually two prices quoted when you're exchanging a currency. These are the bid and ask prices.

The bid is the price that the market maker is willing to buy the base currency at. The ask is the price that they're willing to sell the base currency at.

The difference between the two is known as the spread. This is the profit margin for the exchange provider.

Exchange providers may also charge fees and commissions on the trade. These will vary depending on various factors. For example the size of the trade and the currencies involved. Bigger trades will have lower fees as will more widely used currencies.

The medium of the exchange will also impact these fees depending on whether it's cash, wire or credit card.

Currency rates that an exchange provider uses is determined by the interbank rate. This is considered to be the wholesale rate for currency exchange.

The interbank rate is what major financial institutions use when exchanging large sums.

What an exchange provider charges will vary. Though one thing's for sure and that's, the big banks aren't giving you the best rates.

Next let's look at the factors that can effect that interbank rate.

What Moves Exchange Rates?

As with all markets the basic force that drives an exchange rate is supply and demand. The question is what factors have an impact on the supply and the demand.

The value of a currency against it's peers is a reflection of that countries economy. The stronger the economic performance the more demand for the currency.

In the 2000's Australia experienced an economic boom. As China grew they needed the commodities that Australia produced. During this period of economic prosperity the Australian dollar hit an all time high.

Strong growth, inflation that's under control and high employment rates. These factors increase the demand for a currency and poor performance reduces it.

The policies of a country's central bank will also have an impact on it's currency. Interest rate movements and quantitative easing programs set by them are examples.

To illustrate in 2018 the Federal Reserve raised interest rates four times. Stronger economic performance raised inflationary concerns so they acted. These actions attracted investors because of higher anticipated returns on US assets. This also meant that the US dollar strengthened against other major currencies.

Another factor which impacts currency movements is political stability.

Take Switzerland and Singapore both countries are great examples of politically stable jurisdictions. Their currencies are very stable and seen as safe havens in times of volatility.

Conversely, after the Brexit referendum the British Pound experienced significant volatility. This was due to the ongoing uncertainty and political turmoil that resulted.

Another factor that moves currency exchange rates is market sentiment. This can have either a positive or negative impact on a currency.

An example of this was during the Eurozone debt crisis. Investors viewed Greece, Portugal, Ireland, Italy and Spain as being higher risk. This resulted in negative sentiment towards the Euro. Traders started to sell it and as a result it declined against other major currencies.

Finally another factor that can impact a currency's value is speculation.

This is when investors look to make short term gains on the movements of a currency. Whether it's rising or falling there is a market mechanism to make money.

The most famous example of this was in 1992 when George Soros bet against the pound. Soros believed that the pound was overvalued, so he started short selling large sums. Other investors then started to follow suite and the pound fell in value.

We've gone through all the reasons why a currency goes up or down. And now you have a better understanding of how the currency markets work.

Next we'll move onto the bit that's going to save you some money...

Getting The Best Value On Your Currency Trades

Have you ever checked the exchange rate before making a transfer. You send the money and you're expecting a certain amount to arrive in your account.

Though when the money actually hits your account it's way less than you thought it was going to be.

We mentioned earlier how we'd seen expats paying 10% and more in commissions and transfer fees.

The thing is, if you find yourself in this situation and you start asking questions. Then none of the parties involved know anything about who took it.

The good news is that these days there's way more options available to you than there once was. There's companies out there who've built their business around a very different model.

They specialise in this sector and by offering better value they have higher volumes.

So who are these companies and what do they offer you?

We'll look at the benefits of using these types of account a bit later because they're very similar for each of them.

Lets start with the one that you might have come across already. We see other expats recommending them on social media all the time.

They're Wise, formerly known as TransferWise.

Wise

Now, here's something that you might not realise because many people don't.

Wise aren't a bank!

They're a financial technology company specialising in international money transfers and multi-currency accounts.

Wise offers cost-effective, transparent solutions for individuals and businesses. It helps it's clients to send, receive, and manage money across borders.

A Wise account lets you hold multiple currencies and make international transfers. With account holders benefiting from very competitive exchange rates and transfer fees.

Also, the Wise debit card provides a way to spend globally.

You're able to hold over 50 currencies in the Wise multi-currency account.

As we mentioned Wise doesn't have a banking license.

This means that accounts aren't protected by any government-backed deposit insurance schemes. These schemes vary by country.

They provide protection for deposits up to a certain amount per account holder per bank.

They're designed to safeguard your funds in the event of a bank failure.

What you get with Wise is something different. Your money is held in a segregated account with a licensed financial institution. Wise don't lend or invest your money and it's held separately from their own operational funds.

Wise offers certain protections and security measures for customer funds. It's important to remember that these may not provide the same level of protection as a bank.

Revolut

Revolut is a global digital bank. They offer banking services and currency exchange via multi-currency accounts.

They also provide debit, credit and virtual cards as well as personal loans. In addition to that they also offer stock, crypto and commodity trading.

Withdrawals can be made in over 120 currencies and transfers in 36.

Revolut are a bank and are part of deposit insurance schemes where they hold licenses.

N26

N26 (formerly Number 26) is a mobile digital bank. They provide banking services via a user-friendly app linked to a current account. With the account you get a debit Mastercard and also a maestro card for customers in certain regions.

N26 also offer a premium account that has additional services. They also have savings and crypto trading accounts available.

N26 is a bank and holds banking licenses in the jurisdictions where it operates. As such it will be subject to deposit insurance schemes operating in those areas.

The Benefits

There's other service providers out there and new ones are entering the market all the time. For this article we're focusing on these three.

We said that we'd look at the benefits of using these accounts at the same time. That's because there's quite a bit of crossover between them.

So here's the benefits of using these three:

1. Low & Transparent Fees - They all provide clear and competitive fees for international money transfers. There's usually no or very low fees for currency exchanges and international transactions.

2. Exchange Rates - They use interbank rates for currency conversions. These are far more competitive than those given by traditional banks.

3. Multi-Currency Accounts - Account owners can hold and managed multiple currencies via one account.

4. Fee Free Spending Overseas - Debit cards allow users to spend money abroad without incurring foreign transaction fees.

5. Instant/Fast Transfers - Transfers are usually completed instantly or with in a few hours.

6. In App Features - The apps that these services run on have a number of different features. Real time transfer tracking, budgeting, expense monitoring and customer service chat.

There may be other benefits for you using these type of account though these are the main ones.

Are there any issues?

Yes of course there are nothings perfect, so what are they?

The Cons

1. Limited Banking Features - Their service offering isn't as expensive as those from traditional banks.

2. Account Freezes - Accounts can get frozen for security or compliance reasons. When this happens it can cause major inconvenience for account holders.

3. Withdrawal Limits - Cash withdrawal and spending limits on accounts can be restrictive for some people.

Before we sum up what we've talked about today...

Here's another opportunity to get a copy of our...

"Expat Life Insurance Confirmation Pack".

It's completely FREE and has resources to help you confirm your life cover still works. Plus it gives you a step buy step guide of how to do that and gives you questions that you should be asking.

So CLICK the image below and get your's NOW!

Our Final Word On Exchange Rates

We see comments in expat groups all the time about which accounts pay the best interest. The thing is what you make in interest is nothing compared to what it can cost you in currency exchange fees.

In fact if you're not getting this right it could be costing you three times as much as you're making from your bank. It could also be wiping out returns that you're making on your stock portfolio.

So it's important that you make these savings because they make a difference.

Now we've given you a few examples of accounts that can save you money. There's more out there and some of them might be a better fit for you.

A word of warning is if they don't have a banking license then be careful. This is because your deposits don't have the same protection if they fail.

So if there's a guy telling you to use Wise to set up a local bank account. Ignore him because he doesn't know what he's talking about.

There's nothing wrong with using Wise to make transfers and get better exchange rates. Though remember they're not a bank so don't use them as one.

Holding large deposits with them could see you lose the lot if they run into financial problems.

Finally, here's another opportunity to get a copy of our...

"Expat Life Insurance Confirmation Pack".

It's completely FREE and has resources to help you confirm your life cover still works. Plus it gives you a step buy step guide of how to do that and gives you questions that you should be asking.

So CLICK the image below and get your's NOW!

Thanks for reading we'll be back again next week.