Wednesday 23 June 2010

On transferring money from UK pensions/regular payments abroad

There are many reasons why people return from their overseas adventure sadder but wiser. These include:

- The death of a loved one or partner

- The wrong choice of destination

- Realising too late that they prefer their homeland after all

- Their mortgage payments have become too much

- Not being able to live on their pension.

The final point raises the question of why they can no longer live on their pension. Presumably when they went out they had planned carefully so as to ensure that they could live comfortably for ever and a day, so what changed?

Well, the dramatic events of the last few years have changed things considerably. Northern Rock was a real shock to the currency market which saw sterling fall from the €1.50ish/£1 level to the €1.25ish/£1 level. But surely this was a one off? The UK and the world banking system couldn’t possibly be about to implode - surely they weren’t that stupid…?

Well, were they that stupid? Some certainly were, but greed seems to have been the main catalyst for the worldwide economic collapse. That, plus a lack of government control that would have ensured that the excesses were avoided in both the UK and the US. So we saw Lehman Brothers go bust and RBS and the Halifax/ Lloyds Banks needing to be bailed out by the UK government.

The net result was sterling nearly hitting parity against the euro. This in turn meant that, in the space of 18 months, those receiving their pensions in euros saw its value drop by about one third.

You may ask how a currency company like Smart can help individuals when they make regular transfers and pension payments abroad. They are not miracle workers but there are two things that can and will help:

The first thing is to reduce the cost of each transfer, but how does Smart Currency do this?

By giving you a much better a much better rate than the bank and minimising, if not eliminating altogether, add on costs. Soon after Smart Currency Exchange opened for business in 2004, a client who was emigrating abroad confirmed how much better Smart’s rates were than the bank’s. After completing his initial euro transfer to purchase his new home, he was ecstatic about the excellent service received and confirmed savings of over £20,000 compared to his high street bank. Effectively he had saved enough money to pay his legal costs, removal costs and buy some new furniture for his new home – not bad going.

Since then Smart has transferred his pension each month thus saving him at least £75 each month compared to the rate he would get from his bank. So each year Smart saves him over £900 - he has an extra €1,000 in his pocket rather than the bank’s.

But he has also eliminated the add-on transfer cost that the bank charges for sending funds abroad. This could be as much £25 per transfer. So in fact he has saved in the order of £100 a month or £1,200 per year! In the current climate that extra €1,400 per year is not to be sneezed at!

So let’s work out what he could theoretically save over the lifetime of his relationship with Smart. Assume that he lives for at least another 25 years: using Smart Currency will have saved him £20,000 initially and £30,000 on his pension payments over the 25 years, making a total saving of £50,000. That means an extra €60,000 to spend on his new life abroad - a great result.

The example given above is a good starting point in today’s difficult climate but even more can be done by better forward planning.

Exchange rates have become extremely volatile over the last few years. Within the last twelve months we have seen a minimum exchange rate of €1.06/£1 and a maximum rate €1.19/£1. So if, in the course of the year, if you were transferring say £1,000 a month and you bought all your euros at the peak rate you would receive €14,280. But if you bought at the bottom you would have received €12,720. That’s a difference of €1,560.

Admittedly you would be very lucky to buy at the highest or sell at the lowest rate as no one can be sure when these extremes are reached, even those who have been in the industry for years. Exchange rates move quickly so peak or bottom rates are only available for a fleeting moment.

What Smart suggests is that clients first decide on an exchange rate that is realistic in the current environment and that works for them. Then the client should plan on ‘buying the currency forward’, within say the next 6 or 12 months. This may sound complicated but it’s really quite simple.

‘Buying forward’ means that you agree an exchange rate for a specific amount of euro’s for an agreed period in the future. Smart then phones into the market as the rate changes, trying to meet your exchange rate objective. This option of buying forward is usually not offered by the banks as it would be too time consuming. Generally banks set their rate early in the day and set it so that what ever happens during the day they do not lose money!

Recently we have secured forward contracts for clients making regular transfers to Euroland at rates close to €1.17/£1. If the forward contract was for a full year then the client would receive €1,700 a month for the next 12 months. This is an improvement of €1,320 over the minimum amount as noted above.

Of course exchange rates could improve further but that is a risky assumption in the current climate. And are you willing to forego certainty for potential gain? Many are…and it means that, if rates do improve, you can take advantage of those rates at a future date.

So it could be argued that using the services of a company like Smart Currency Exchange Limited could benefit you up to €100,000 over a 25 year period. And most of us would think that is a benefit worth having.

Let a Smart client tell you herself:

Dear Smart Currency Team,
I just would like to let you know that the money I transferred has already arrived at the destination account, and I am a very satisfied and happy customer of yours. I will use Smart Currency Exchange next time as well, and I already told my colleagues that with your service, overseas money transfer was smooth easy, and without any cost. Thanks for your help and professionalism.
Have a nice day and all the best, Beata Turik


For more information on Smart Currency Exchange, please call our freephone: 0808 163 0102 (+44 (0)207 898 0541 from outside the UK) or visit our website at: SmartCurrencyExchange.com

Thursday 17 June 2010

What does the increase in the €/£ exchange rate mean to you?

What does the increase in the €/£ exchange rate mean to you?

The last few months have been good for sterling relative to the euro. At one stage we even exceeded a rate of €1.21/£1 - the last time we saw this was in late 2008.

But have you sat down and worked out what this could mean to you? And do you know how to take advantage of this rate and minimise your “downside risk”? The benefits don’t just apply to the larger payments - regular and/or smaller one-off payments can benefit too.

If you started looking for a property in the Euro zone in 2009 you would more than likely have been budgeting at an exchange rate of between €1.05 to €1.10/£1. This means that every €100,000 you were expecting to spend will now cost you £10,000 less than you first thought!
A saving like that could pay for your white goods, a new car or perhaps an even bigger property.

And for those of you who originally budgeted for a rate above €1.20/£1, you may well find that the drop in house prices means that the cost in sterling terms is very similar to what you at first had budgeted. Maybe it’s a case of dusting off those cobwebs and revisiting your dreams!

And, as mentioned, this doesn’t just apply to larger payments. Regular transfers of pensions could suddenly net you 10% more or mortgages could cost you 10% less. And such amounts can make a huge difference to the way you are able to live.

The question is, of course, will the exchange rate stay at these exalted levels? Who knows? Market analysts say yes, given the problems in the Euro zone, but we also have to remember the problems we have here in the UK and the huge government budget deficit. Things could change very quickly…

How do you guard against this and minimise the chance of getting less for your sterling as the rate returns to €1.10/£1?

In an ideal world, if I was committed to buying a property, I would want to buy my euro’s sooner rather than later, so that I could secure the reduced sterling cost. However, I wouldn’t want to pay it for it all now. That sounds a trifle unrealistic, but it can be done, using something called a forward contract.

You simply agree the amount of euro you are buying and the exchange rate you are happy with. This in turn means you will have established the sterling cost and the time by which you will pay for the funds in full. A deposit of up to 10% will secure the funds being bought on your behalf.

The same principle can be applied to regular payments, where you can fix an exchange rate for the next twelve months and draw on it monthly.

Give us a ring and talk though the different options. This will remove the downside risk by buying some, if not all, of your euro’s ‘forward’.


Jargon Buster – Downside Risk
"Downside risk" - the possibility that exchange rates will move in such a way that you suffer an additional cost and there is nothing worse than suddenly having to find an extra amount of sterling or receiving less than you had originally expected. Also it seems to happen when all indicators seem to point to the opposite happening! That is why buying/selling forward is excellent for minimising downside risk


UK Banking Systems – the simple made so difficult
Just thought it worthwhile to share an article from this weekends press on the UK banking system. Never ceases to amaze me how the simple is made so difficult. You would think that the "faster payments" system would be fairly universal in how the UK banks implemented it. Clearly not.

But having said that it makes it so much easier for people to understand why we exist as a company bringing simplicity to international transfers plus the ability to talk to someone who can help rather than having to spend half a day trying to find someone who may be able to help.

http://news.bbc.co.uk/go/em/fr/-/1/hi/business/10297758.stm


For more information on Smart Currency Exchange, please call our freephone: 0808 163 0102 (+44 (0)207 898 0541 from outside the UK) or visit our website at: SmartCurrencyExchange.com

Wednesday 9 June 2010

An Option the Banks Won't Tell you About....

by Smart Currency’s Charles Purdy.

It is often thought that the only way to buy currency is by paying for it in full.

Most buyers that don't know about currency options buy the currency as and when it is required - they wait until the last minute. This is what the banks love their clients to do as the client is 'forced' to buy at the rate the bank offers.

Some buyers buy the €’s immediately when they know the amount even if they don't need to use them for 3 months. Buyers do this to avoid the cost of the euros increasing so they know their exact costs.

However there is a more efficient alternative that the banks fail to tell you about.

The alternative is to secure your currency requirements (without paying the full amount for them) using what is known as a forward contract.

Pretend that you require €100,000 in three months time and you don't want to risk the sterling cost increasing by £5-10,000. (An increase can easily happen due to changes in the exchange rate between now and 3 months time)

You can agree an exchange rate for those €’s now. All that would be required is a deposit of up to 10% of the sterling purchase cost.

This means that you don't need to pay the full amount for the euros now, so you can keep 90% of your funds in a sterling high interest account. By doing this you will know EXACTLY how much you will require when it comes to pay for the €’s in three months time. (You'll know that you won't need to pay an extra £5-10,000 )

It may sound complicated but is very simple to do when you work with a company like Smart Currency Exchange. And the joy of such an approach is that it removes all the uncertainty and the associated stress and strain as you know exactly what your cost will be.

For more information on Smart Currency Exchange, please call our freephone: 0808 163 0102 (+44 (0)207 898 0541 from outside the UK) or visit our website at: SmartCurrencyExchange.com

Friday 4 June 2010

So Happy in Cyprus!

Hilary and Lyn Whitehead were looking for a sunny, relaxing holiday retreat away from the gloom and doom of the UK. Life had not been altogether easy recently: “I nursed a sick relation through very serious health problems” confided Hilary, “and I must say I really was looking forward to a time when we could relax in the sun - and where better to do that but in Cyprus?”

Added to that was the incentive of a rental investment. With property sales slipping worldwide, they realised that rental properties are much in demand and they decided this could be a good way to supplement their pensions.

“We had spent many happy family holidays on the island” recalls Lyn, “so it seemed the obvious choice for us to start looking for our place in the sun there.”

“We had visited the island over a dozen times over the years, and loved it. Hilary agreed. “We wanted to buy perhaps in the Tala or Pissouri areas – that was our original idea. We were all booked and set to travel to Cyprus in September 2008 – and guess what? We had booked our return trip with XL Airways, flying out of Gatwick on the 15th; on 12th September the company went into administration!” Undeterred, the Whiteheads rescheduled and flew off to Cyprus early in November, determined to enjoy their new property by the spring of 2009.

After quite a bit of research on the Internet, help for the Whiteheads came in the form of a company that offered impartial advice, backed up by references from people who had actually been through the buying process in Cyprus themselves. “We did our homework very thoroughly and found what turned out to be a most amazing estate agent. We had read the Cyprus Buying Guide website and contacted them for help. They were able to make informed recommendations based on both information gleaned from readers and from personal experience.

“The estate agent helped us reschedule our trip and took us to numerous properties in Cyprus” adds Hilary. “Their service was absolutely EXCELLENT. And not only that: our concern was the fact that the exchange rate had turned against us. We were on a very tight budget...135,000 GBP. We also anticipated a lot of add on’s.....Smart Currency Exchange, the currency company the Guide recommended, talked us through the idea of buying our currency in advance, what they called ‘forward buying’ - which made a lot of sense and set our mind at rest about spiralling costs.”

By early January the Whiteheads were well underway to being the proud owners of a lovely property in Cyprus. Spring in their new home has become a reality, and all that remains is to move in and enjoy the fruits of their labour!

For more information on Smart Currency Exchange, please call our freephone: 0808 163 0102 (+44 (0)207 898 0541 from outside the UK) or visit our website at: SmartCurrencyExchange.com

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DisclaimerExchange rates can move very quickly. The above rates are valid at a moment in time. We have no crystal ball and we recommend that if an exchange rate works for your budget then don’t wait for an even better exchange rate - Murphy’s Law says the rate will go against you and cause you maximum pain! Suggestions should not be taken as advice or fact.

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