SPECIAL EDITION – Understanding the Currency Exchange Game
We Americans grow up with the U.S. Dollar…the buck…the greenback. Some Americans have been known to come to Europe and call the currency “funny money” or “Monopoly money” – somehow not considering another country’s currency as ‘real’ as American money…but trust me, it is, and the foreign currency market is very real, too.
By law, foreign currency cannot be held in a U.S. bank. Therefore, any foreign currency accounts must be held “offshore.” A bank account in France is an “offshore” account, even if in your mind you associate “off shore” with places like Switzerland, Cayman Islands, Luxembourg, or the Isle of Man…and in addition, associate banking offshore with money laundering or tax evasion.
While there are a few who use “offshore” for those purposes, anyone with an apartment or home in France that supports the property with a bank account in France knows that this association is misguided and that their account is by no means a “haven” for ilicit activity. Holding money offshore is perfectly legal by an American as long as the source of those funds has been reported and tax has been paid on it.
When a non-French resident purchases a property in France, the payment is made to the seller in euros by transfer via the Notaire (property attorney) and therefore the Notaire must receive the funds in euros. Most foreign buyers must make a currency conversion from their own country’s currency to euros — in our case, mostly dollars, U.S., Canadian, Australian. That currency exchange can cost more or less depending on if the bank or currency broker takes a commission or adds a fee into the “spread” — the difference between the rate of exchange that is bought and sold.
Most people who are not familiar with currency exchange assume that it’s best or easiest to simply ask their bank to make the transfer and yes, there is no reason their commercial bank can’t perform that function. However, commercial banks who also aren’t in the habit of such transactions normally add excessive fees. This means the cost of the transaction could be much higher than is necessary and on large sums of money, could make a substantial difference.
In fact, there is normally a difference of 1% between what commercial banks charge to make the transfer vs what currency specialists charge — whose only business is to exchange currencies worldwide. One percent can make a big difference on an exchange of 300,000€ for an average priced property — that’s 3,000€ spent with absolutely nothing to show for it!
In addition, as rates of exchange fluctuate on a moment-by-moment basis, a transfer can be timed to maximize the gain if you’re working with professionals who understand the game.
We have been working with a currency specialist for several years with which we’ve had an excellent experience in terms of both price and service: Moneycorp. Moneycorp offers a number of tailored services to ensure people get the best exchange rates for any international transfers…from regular monthly payments (such as an overseas mortgage) or to bulk transfers to buy or sell a property.
The way it works is simple. You instruct your bank to transfer the funds in your currency to Moneycorp and then Moneycorp forwards the funds in the other currency to the destination of your choice. In many situations you can also greatly reduce the simple cost of the transfer as well as reduce the cost of the exchange.
To give you an example reported by Moneycorp, on November 30th, 2011 HSBC and the Royal Bank of Scotland were offering 1.0940 and 1.1017 respectively for buying 100,000€ with Sterling, on the same day Moneycorp was offering 1.1519 which is a saving of £5,679 and £4,585 just on the exchange rate!
Particularly when transferring money to or from the U.S., one must know that the federal government is keenly watching over such transfers and therefore it is important to work with a foreign exchange company who has the necessary regulatory licenses. With dedicated offices in London and the U.S., Moneycorp can help you transfer your money at the best time when rates are in your favor. A personal account manager is always on hand to provide the necessary expert market guidance.
It is also possible to “buy forward” using a currency broker. Forward contracts fix an exchange rate at which you buy or sell currency for delivery at a later date (up to two years). Forward contracts protect against adverse currency movements and can be used to lock into favorable exchange rates. This can be particularly important when a buyer has set aside money for a purchase and need to reduce or eliminate the risk of paying more when the time comes to make the transfer.
If you are considering an investment in property in the near future, our recommendation is to prepare for a transfer of funds. To get started, it is as easy as opening an account with Moneycorp. It’s free and doesn’t place you under any obligation to trade or use their services.
For more information, visit Global Money Services or email Jordan Tilley at [email protected] or call him directly in the London office at +44 207 828 7000. Be sure and let Jordan know you found him through us.
Editor, French Property Insider
Email: [email protected]
P.S. I’ve been a personal customer of Moneycorp for several years and have never had one moment of concern or hassle. In fact, a transfer can now take less time than one phone call to Moneycorp which has all my coordinates on file so there is nothing to do but agree to the rate of exchange over the phone. (The conversation is recorded and therefore becomes a legally binding contract.) One more phone call to the issuing bank to transfer the funds to Moneycorp’s bank and it’s done. This is literally all in less than five minutes. And one inside tip: even though Moneycorp’s receiving bank is HSBC in London, because HSBC is international, the funds can be transferred to HSBC New York which forwards on the funds to London, saving the cost of an international wire transfer! Ask Jordan Tilley for the “ABA Routing Number” for Moneycorp’s HSBC account in New York.