Our client is an executive at one of the worlds top accountancy firms. He and his fiance plan on marrying abroad.
Since March of 2014 they have been drip-feeding sterling into a euro account they hold with Lloyds bank. The rate being good or bad doesn't really have too much of an effect on whether they convert, although they are in touch more so when sterling is stronger because, well, why not?
They need to convert regardless of where the market sits because they obviously have a deadline by which time they need ‘x’ amount of euros to pay suppliers for their wedding.
When one sends a payment with one’s bank one is charged both an up front fee and a percentage fee which is deducted from (or rather incorporated into) the rate of exchange provided by one’s bank. There is nothing untoward about this. It is exactly like paying to be a member of a group that gets discounts. You are paying your bank to use their service and they are also marking up the cost of the ‘product’ when you purchase and it can be the case that the more you buy, in terms of both frequency and volume, the better the terms you are offered. This is the principle that Prime Cap also makes use of…and is the reason we can offer better rates to our customers.
One of the key things to remember is that in precisely the same way as you might shop around on the high street for a domestic appliance you can shop around for your pound or your euro or your dollar.
Different companies and banks will have different structures that allow you to save on the cost of sending a payment and converting one currency into another. The banking sector varies.
Some banks charge nothing but give a poor rate of exchange or the payment takes a while to arrive at its destination. Other banks charge you as much as £30 and it still takes a while to arrive at wits destination.
Some banks apply only 0.75% to their exchange rate, others 3.5%. It really does vary so tremendously that one wonders how one’s bank arrives at its charges…especially when you are already using them for all your other financial bits and pieces.
Our customer above is being rather clever though because he is exploiting Prime Cap's pricing structure to ensure that he pays far far less then he might otherwise. He is benefiting not only from the competitive rates we provide, but also a pricing mechanism that means his fees are far less.
At Prime Cap we charge a customer a flat fee for the processing of a payment - £10. We offer our clients a number of different ways to send their money. Depending on the bank I am using to send my payments from (and I can use whichever bank I have an account with) I can offer my client access to more than one payment network/option. In this particular case I use ‘SEPA’ (Single European Payments Area). If sending money within SEPA the costs to a broker like us are far far lower; a fraction of the cost of using other methods like TT (telegraphic transfer).
So, by electing to send money to their euro account using SEPA my client avoids any other fee.
You may not think it a lot saved…but, if you consider that my client has made 14 payments since March 2014, then, by using SEPA and sending smaller amounts they have saved themselves well over £245 on fees from us, £133 on fees from Lloyds and (on the basis that they send no less than £1000 per transaction) approximately £500 when the rate of exchange we offer is compared with that of their bank.
To arrive at this estimate we multiplied £1000 by 14 (amount by frequency). 1% being £140.
On average we can shave 2.5% off the rate of exchange applied by a bank like Lloyds (conservatively) which equates to £490 left in our customer’s pocket.
Our customer has over £500 more to spend on their wedding abroad because they used what is a very simple system to their advantage. It is equivalent to a nice cake or 100 €4 bottles of wine.
Sending a payment by SEPA does not guarantee that their money arrives at its destination the very same day. Invariably it does, but it is not guaranteed, so we must concede that the system applied here fitted well with the customers wants and requirements, but would not be suitable for someone who wants to get money abroad the very same day guaranteed.
Want to know if we can help structure your overseas wedding payments...pick up that phone and ask us!