Saving costs wherever you can is one of the top tips of long-term travellers. Sure, you’ll want to build a sustainable and passive income to keep your travels going but reducing your outgoings is an easy way to make your money go further. That’s not to say you have to be stingy either, sometimes it’s just by being clever that you can find alternative ways of doing things or even carry on doing exactly the same things as you are right now and simply change providers to make spending more economical.
Choosing the right international currency card definitely falls into the latter – if you go abroad and buy something you’ll be making a payment regardless but by simply switching providers you could make huge savings.
Then there are some financial products out there that are perhaps not being utilised by expats enough – such as regular transfers and forward contracts – which can help to protect against adverse currency movements and hopefully save both money and time in the long run.
International Currency Cards
Unless you’ve been keeping your head in the sand (if you have well done – I take my hat off to you) the chances are you’ve heard of some of the newly launched digital banks to have revolutionised the banking industry in recent years. Revolut (8 million customers), Monzo (3.5 million customers) and Starling (1 million customers) have all taken the market by storm. Seamless account opening, an easy-to-use app and improved spending metrics on your purchasing behaviour are common features across all.
Another major focus of these digital banks is looking to clamp down on unnecessary or hidden fees. In this regard, excessive FX fees are not such a recent discovery, but few companies have done more to drive the cost of these services down for consumers than digital banks and international money transfer providers. Big banks have long offered FX savings to their biggest corporate clients but your average retail banking customer is still being charged a fortune.
How are these fees hidden? When conducting the actual exchange of currency, say GBP to USD, banks exchange at the interbank rate (which is the rate you’ll find on a google search) but then apply a spread to the end customer rate. So, as an example, whilst you should actually be getting $1.25 for every £1 you spend, you’re only getting $1.20.
Big banks generally offer bad spreads when you use your card abroad, plus an international fee in some cases. Some of the worst spreads you’ll find is for travel money at the airport where spreads can be as large as 10%. Even visiting your nearest travel money outlet prior to departing will still see you incur spreads of around 5% and leave you significantly worse off than using a digital bank. When using a digital bank you’ll be charged somewhere around 0.5% for common currencies and perhaps higher for more exotic currencies.
Don’t just take our word for it though, do your research and you’ll soon find the companies offering the tightest spreads are the ones who are happy to advertise their fees online. Be wary when a bank or digital provider doesn’t do this.
Many expats living and working abroad have exposure to currency markets, whether it’s the repatriation of overseas income, sending money to friends abroad or paying a mortgage off in their home country. You name it, anything done overseas is likely to require currency conversion and thus leaves expats at the mercy of the going FX rate on the day they would like to make an international payment.
The FX Forward is such a simple tool which gives expats one less thing to worry about. By agreeing today’s FX rate for a point in the future, usually within the next 2 years, expats can get complete clarity on how much they will have to pay. Rather than waiting to see what the rate is on the day, people can lock in today’s rate if they are happy with it and have sufficient funds to make the payment.
If we take mortgage payments in your home country as one example, many international money transfer firms allow you to set up regular payments with a forward contract. So the next 24 months of mortgage payments you could agree to make at today’s foreign exchange rate. Meaning you won’t lose out if the markets move against you in the future. You also won’t benefit from any gains of course but if you have the funds as it is today and are comfortable with the rate you can prevent unnecessary exposure to currency risk.
Generally, you can’t book an FX forward for an individual through the big banks – the best bet is to look into international money transfer firms and foreign exchange brokers.