I’m not a financial advisor, but I’m about to offer some long, boring financial advice. Those of you who know me may think this is a dumb idea, as I’m not a big money person. You get it, you spend/save it, whatever. I don’t invest, my superannuation (Australian pension supplement) is way, way behind, and I avoid debt wherever possible. I hate what capitalism does to our environment and ourselves, yet I’m not planning a revolution because I can’t think of an alternative. (Though it might be fun to watch.)
Anyway, I’m here to offer a little advice about foreign exchange. Not for huge amounts of money; if you know someone who does, listen to them instead. This is for anyone travelling overseas and anyone working overseas and sending money home.
The basic bit of information here is that it’s always better for you to buy local currency, not foreign currency. So if you’re in the UK (pounds sterling), travelling to Western Europe (mostly Euro) then you shouldn’t buy a whole heap of Euros from the currency exchange kiosk at the UK airport. Buy enough to get you from the airport to a bank machine in Europe (automat, whatever), and maybe a buffer for the first night.
You will get a better rate buying local currency from a European hole in the wall, using your usual bank card (look for Maestro/Cirrus or Visa symbols on the back) even though they will charge you for the privilege. The exchange kiosk will charge too.
(A buffer is still a good idea, in case you can’t find a teller. Japan’s Visa machines don’t normally deal with foreign cards, and you’ll have to search one out. Ghent, in Belgium, is just short of them. And sometimes you won’t feel safe using them. A buffer is a good idea.)
This doesn’t only apply to cash, but also to large electronic transfers (TT) as performed by banks. If you’re sending money (say) from the UK to Australia, somewhere along the line there will be a currency exchange from GBP to AUD. The local bank in the UK will ask if you want to send pounds or dollars. They will then give you crappy, wishy-washy advice on which will be better.
Yes, exchange rates change, sometimes quickly. I’ve seen the pound range from 2.89 dollars to 2.30 in the last few years. But you will get a better rate if you buy the Australian dollars locally, in Australia. Yesterday, each pound sent from the UK would have bought 2.56 Australian dollars in Australia, but buying them here and sending Australian dollars directly buys only 2.51.
Sure, the exchange rate could change in the next few days, but you’re unlikely to win out buying a foreign currency. If you need to know exactly how much you’ll get at the other end, then sure, maybe that’s valuable. And of course, both of those rates are better than the rates from just two weeks ago. So it’s all a big crapshoot. Just don’t let the banks rip you off any more than they’re going to anyway, and buy your currency locally: buy Australian dollars in Australia, and pounds in the UK.
Lastly, if you’re sending a lot of money back, don’t do it all in one hit. Spread it out over time and you’ll minimise your losses, plus probably gain from spreading your income across two countries. Your mileage may vary, no responsibility taken, these statements are forward looking, Blah, Blah, Blah.