The ACCC report found that individual consumers sending US dollars and British pounds in 2017 and 2018 could have collectively saved around $150 million. All they had to do was use the lowest-priced alternative suppliers instead of the big four banks.

This is a timely reminder for Kiwis serviced by the same four banks in New Zealand. It is really important to compare a number of factors when using international money transfer services. The three main criteria to keep in mind are the transaction fees, the currency exchange rate and the time it takes to transfer your funds.

What to look out for: Transaction fees

If you compare the best deals on international money transfer services here, you will see that transaction fees can vary widely. Using a default amount of $1,000 NZD to send to AUD, the fees you pay will range from ‘nil’ to as high as over $10. Similar fees can be as high as $40 when using banks, depending on which bank you use.

This difference will vary depending on which currency combination you use, but clearly the range can be wide. Remember, the larger the amount you transfer the wider will be the range of transaction fees between providers. Typically, the fees you pay to an online provider will be cheaper than the one you pay at the bank.

What to look out for: Currency exchange rates

Exchange rates have a significant impact on the final amount you receive in the foreign currency. At any point in time there is a range of currency exchange rates between NZD and other currencies. There is also a difference in rates between what individual consumers receive and what institutions receive. Invariably, the rates are less favourable for individual consumers. Banks typically charge rates closer to the higher end of the range. Online alternatives charge the middle of the range rates. This makes the online alternatives immediately more appealing.

For instance, as of 11 am on 3 Sep 2019 you could spend NZ$101 to buy AU$100 via an online services. At the same time, banks on average where charging an average of NZD106. That’s $5 on every AU$100 you exchange.

From the above two points it’s obvious that there is a combination of factors you need to be aware of before making a decision on which international money transfer service provider to use.

Shop around for the best deals

An additional challenge is highlighted in the ACCC report. There is a lack of transparency when it comes to how banks charge consumers for the service. The report went to the length of stating how often bank’s claims around ‘no fees’ are misleading consumers. The ‘no fees’ carrot being dangled to attract consumers is largely negated by high exchange rates that are applied. This is often done without the knowledge of the consumer. In their own words “……give the illusion that the price is lower than it really is..”. As the ACCC reports, the big four were “consistently more expensive than many other suppliers” for international money transfers.

Pocketwise has made similar observations here in New Zealand. Online options consistently offer better deals than mainstream banks. Before you do your next transfer, make sure you shop for the best deals on international money transfer services.

As comforting as it may be to use a familiar bank for international money transfers, remember loyalty comes at a price.

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It goes without saying that there is no crystal ball to look into the future. So, it’s impossible to forsee how foreign exchange rates may change over short periods of time. Buying foreign currencies by trying to predict what the future might hold is fraught with danger.

Events such as a change in headline interest rates either locally or in the foreign country can have immediate impact on exchange rates. But it is close to speculation when determining how long those trends would continue and when to time your purchase. Exchange rates are influenced by a myriad of reasons and as such are hard to pin down over the short term.

The impact of interest rate cuts

Almost a month ago, the Reserve Bank of New Zealand (RBNZ) cut headline interest rates to an historical low of 1.5%. Over the following few weeks, the exchange rate between NZ dollars and US dollars fell from about 0.6598 to 0.6484. This meant that you had to pay more NZ dollars to buy the same US dollars.

To illustrate this, suppose you need US$5,000 of spending money. Before the rate cut announcement, you would have spent NZ$7,578 to buy the US$5,000. But, if you waited for a few weeks you would have ended up paying NZ$7,711 for the US$5,000. You would have been worse off by NZ$133.

Ironically, if you waited for another week or two more you could have bought cheaper again as rates moved back up. Find out here who’s got the best exchange rates now.

You get more bang for your local buck when you are able to buy more of the foreign currency for the same amount of home currency. The obvious question then is to figure out when is it best to buy the foreign currency.

In the face of such uncertainty, a pre-paid travel money card could be handy. Especially if you are worried about the exchange rate going against you.

How does a travel money card work?

It’s pretty straightforward. You exchange your home currency for the foreign currency and load up your travel card with that amount. You then simply use the card when you are overseas to make payments in the foreign currency. Today’s exchange rate will determine the rate at which you will be able to buy the foreign currency. By doing so, you are effectively locking in today’s rate for the future use of your money.

As an example, say you are travelling to the US in a month’s time. Suppose the exchange rate today is 0.65. If you want to have US$1,000 of spending money you can pay NZ$1,583.46 today and load up the US dollars on your travel card. While you are in the US you can then use the card for all your payments, with no regard to whatever the exchange rate might be in a month’s time.

It makes imminent sense to shop around for the best foreign currency rates on offer. Click here for all your money transfer needs.

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Should you exchange your New Zealand dollars right away or should you wait until it’s closer to your travel? As much as this can be a tricky one to decide, it always helps to understand what some of the usual reasons are for foreign currencies to change in value against your local dollar.

If you had NZ$1,000 on you back in August last year and changed it to US dollars you would have had about US$750 to spend when overseas. Today, that same NZ$1,000 will buy you only US$660 to spend overseas. A 12% loss on your spending capacity. You could wait another month but then you may get even less. Although, there is always the probability that you could buy more in a month’s time. What follows is a simplistic view on how everything hangs together.

When exchanging one currency to another, the value of the foreign currency relative to your local currency changes largely based on demand and supply conditions. When there is more demand for the foreign currency, the price of that goes up relative to the NZ dollar.

So, for instance, when interest rates go up in the US, the demand for assets such as deposits in US banks go up (because you can earn more from them now) – meaning more foreign investors will want to invest in those type of assets. When more investors enter that market the demand for the US dollar goes up as those investors are selling their local currency and buying US dollars to spend on buying those assets. This means the US dollar grows stronger against each of those foreign currencies.

Since August last year interest rates in the US have been raised 4 times, from 1.25% to 2.25% today – the last raise was as recent as this month, when they were put up by 0.25%.

Over that same period, interest rates in New Zealand have held steady at 1.75%. This means that within just the past 12 months the US has, relative to New Zealand, gone from a lower interest earning economy to a higher interest earning economy. This aligns with the change in value of the US dollar versus the NZ dollar over the same time.

That’s the theory! You still need to decide whether you should change your New Zealand dollar today or wait. Most indicators are that the New Zealand dollar is on a downward trend against the US dollar. Why? There is speculation that we may have to cut our interest rates, whereas in all likelihood the US may actually put up interest rates again. This means the relative strength of the US dollar is going to go up even further against the NZ dollar – that means even fewer US dollars for you to spend!

Of course, you are not guaranteed of the above. A half-way measure may be to change some of your NZ dollars now and change the rest closer to your travel.

Find out how many US dollars you can buy today.

The post The Best Time To Buy Your Travel Money appeared first on PocketWise.

International money transfer is the process of sending money overseas. When sending money overseas, you generally need to open an account with your chosen service and deposit money via bank transfer or credit card (this may incur extra fees). You will then need to tell them the country you’re sending funds to and the destination bank account number.

Due to strict regulations around international money transfers, you will also need to prove your identity by submitting a proof of identification.  The service then processes your transfer as quickly possible.

Why do banks charge so much to convert currency?

Well, because they can! Its as simple as that. If you asked the banks you’d probably get a big document full of legal jargon justifying the ridiculous fees. Bank fees on international money transfers and currency conversions can be split into two categories: Implicit and explicit costs. Explicit fees can be a % fee or a fixed fee for each transaction.

Implicit costs are usually hidden in the exchange rate. If you compare a bank’s exchange rate with the mid-market rate (otherwise known as the real exchange rate), its usually a bit lower. This is the margin the banks have added to account for fluctuations and maximize profits. Depending on your bank, this could be as much as 2-6% off the mid-market rate!
Putting this all together, upfront fees and the hidden margins on the exchange rate add up to quite a lot depending on how much you are transferring!

Check out our blog on IMT hidden fees to learn more about fees.

Why should I use an online international money transfer service?

The most obvious answer to this question is the international money transfer services we’ve partnered with offer much better rates and low or no fees on transfers. Their services are available 24/7 and you can make the transfers from the comfort of your plush sofa, or wherever you are. Try it out for yourself by comparing the top international money transfer services on PocketWise!

Is my money safe with these online money transfer services?

Yes, all of these services are heavily regulated and security is of very high importance for them. All of these services use secure websites and give you the tools to track your transfer at every stage.

How long does it take for my money to reach the recipient?

This depends on a few factors, the currencies you are transferring to and from, and the service you are using. For most of the popular currencies, many services we compare are able to transfer within one business day. They usually say up to three working days but in reality its much quicker than that.

If you have any other questions about international money transfer, get in touch with us, we’re always happy to help!

The post Top 5 International Money Transfer questions answered appeared first on PocketWise.

Relatively easier, in the sense that you have a lot more options today than just your neighbourhood bank or that corner store with the Western Union kiosk. Having said that, it still remains a huge challenge to figure out the cheapest possible currency exchange provider. There are a number of costs involved in transferring money overseas – some obvious, some very hidden!

These costs can appear primarily in one of two ways – a ‘transfer’ fee, which is typically a flat fee, and an ‘exchange’ fee, which is the hidden fee. Let’s dig a bit deeper into why the hidden ‘exchange’ fees is critically important to you.

This is how it works. Say you want to buy US dollars with the NZ dollars you have with you. The bank or money transfer provider will set a price, or an ‘exchange rate’, for this transaction. For instance, today they may quote you a price of 0.67 for NZD vs. USD. This means that they are willing to exchange (give you) US$67 for the NZ$100 you give them.

Now remember, the bank or the provider themselves has to buy the US dollars first to give to you (in exchange for your NZ dollars). They make money when they buy the foreign currency at a cheaper price than they sell it to you at. The difference between what they buy it for and the price they sell it to you is the ‘exchange’ fee.

So using the same example as above, if they can buy US dollars at 0.69 today it means that they can spend the same NZ$100 and recieve US$69 – which is $2 more than they are willing to give you. That works out to a profit of 2% to them, in effect a 2% cost to you.

As you can see this cost to you is not an explicit ‘fee’, but is a cost that is embedded within the ‘exchange rate’ they quote you.

On a $100 it may look pretty insignificant, but considering it’s a percentage figure, as the transferred amounts get bigger, the more you will pay in dollars. For instance, if you were exchanging NZ$10,000 the cost to you will be $200 plus the flat fee of anywhere between $25-$45 depending on who you exchange with.

This exchange rate quote will change constantly because people world over are buying and selling different currencies and so supply and demand forces will determine the price for each currency at any point in time during the day. The quote will also vary from bank to bank and provider to provider.

Your goal should be to minimize the currency exchange fee you pay. Think about it this way – the $200 (or whatever amount big or small) you save could be the $200 either you or your loved one could enjoy.

You are well on your way with being smart about this, now that you are aware of this hidden fee. The next step is to compare the exchange rate quotes from various providers.

On that note, we found that it can get really frustrating to compare the different transfer fees and currency exchange fees for the many money transfer operators, including the banks – short of walking up and down to each store front to check out the individual rates.

So we built an online comparison tool to help you with just that – find the cheapest rates across different currencies.

What’s more, we not only compare the hidden fees we also show you how long it will take you to transfer your money overseas too. We made it even simpler so you can sort each item from best to worst so you can see the cheapest deals right away.

We saved the best bit for the last – it’s all free for you to use! Start your money transfer now.

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