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Beware the foreign exchange transfers maze

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The last time the pound was this weak against the dollar, the UK had just agreed to hand Hong Kong back to China, it was in the grip of the miners’ strike and King Charles was just 36 years old. Against the euro, things haven’t been this bad since the 2008 financial crisis.

This will be good news if you have been working abroad and are returning to the UK armed with savings in foreign currencies, or considering a UK home purchase from abroad, but terrible news if you are a Briton pursuing your lockdown dream of buying a foreign holiday home.

Either way, one thing you probably haven’t spent long considering is how much the money changers will charge you to shift the cash.

“Most people do large currency transactions only a few times in their lifetimes, if at all, so they are unfamiliar with the how the currency market works and the companies that operate in them,” says Colin Dewar, who ran Hargreaves Lansdown’s in-house currency desk before the service was handed to Currencies Direct in 2020. “Rules for banking and transferring large amounts of cash vary between countries and are subject to change.”

In 2019, when my Australian grandmother died, I went about transferring the money she had left me back to the UK. There turned out to be plenty of pitfalls.

Earlier that year, my mother had traveled to Australia to tie up my grandmother’s estate, of which she was executor. But she hadn’t put the local bank on standby for a large cash transfer from the probate account to the UK, meaning we had to make the transfers over the internet, drip-feeding the money over in A$50,000 portions, the daily online banking limit.

The next hiccup came when two transfers arrived about A$1,500 short. The culprit turned out to be the intermediary bank — a third party often employed by the sending bank to facilitate a cross-border transfer. There followed weeks of emails and phone calls, with each of the three parties blaming the other until I squeezed out sufficiently detailed records from everyone to identify who was responsible.

Keeping your wits about you will help you avoid this sort of goose chase.

Hunting for the best deal is important, because exchange rates for large money transfers vary wildly. I ended up paying between 0.1 and 0.3 per cent for my transactions, but some high street banks still charge around 2 per cent on foreign exchange transfers, according to research by Hargreaves Lansdown.

HSBC customers could change A$1mn in an Australian dollar account into £557,405 net of all fees. Those using broker Key Currency would get £556,328.23. But if you transferred A$1mn into your account at Co-operative Bank, which doesn’t offer foreign currency accounts, you would end up with £536,775, or £20,630 less than with HSBC.

However, comparing quotes is complicated. For example, you could only find out the HSBC rate if you were already a customer. Price comparison sites, such as or, compare rates offered by specialist brokers such as Key Currency, AFEX, TorFX and Currencies Direct.

Different firms use different charging structures. Online specialists and Revolut change money at, or close to, the interbank rate (the lowest possible rate available at which the global banks transact with each other) and levy a transaction fee. But most specialist brokers make money by charging a spread — a mark-up on the interbank rate.

Dewar says most clients will complete the exchange in a single transaction; cross-border movers expecting to buy a home in future may lock in a rate with a forward contract. Here you set a future date for the exchange and the foreign exchange broker guarantees the rate offered.

The Financial Conduct Authority told me regulation had been tightened since 2009 and consumers are better protected. Firms cannot mix your money with theirs. It must be deposited in a separate bank account until the transaction has been completed and if the firm becomes insolvent your money will be paid before it goes to the firm’s creditors.

But note that these are not personal bank accounts, so you won’t benefit from the Financial Services Compensation Scheme, which protects up to £85,000 deposited per bank.

With such large sums, errors in your instructions may cost you dear. Andrew Gibson, co-founder of Key Currency, acknowledges that once a year a customer error — such as a mistyped IBAN number or SWIFT code — results in a cross-border transfer ending up in the wrong account abroad.

“The international banking system is slow, it could take two to four weeks to get it back to your account. It is so painful for the customer,” he says.

If you’re using a UK-based currency broker and you’re transferring money from abroad, double check your instructions to the originating banks. Transferring funds online across borders typically means checking a drop-down menu where the default option may mean a high-fee transaction. “The banks can be a bit naughty here and want to do the conversions themselves because it’s in their interests,” says Dewar.

Even when you get the instructions right, things might go awry. My $1,500 snafus occurred because the intermediary bank ignored the instruction to transfer Australian dollars and automatically changed them to sterling, charging me commission.

When the sterling amount hit my broker’s account in the UK, the host bank automatically changed it back to Aussie dollars to match the denomination of the account, again at a punitive rate. By the end of the fiasco I’d paid 3 per cent in fees (by comparison, those charged by my foreign exchange broker were between 0.1 and 0.3 per cent).

During the weeks-long detective hunt that followed, my broker was invaluable in helping me chase down the problem. But how much help you get resolving similar mix-ups may vary.

Because these are firms regulated by the Financial Conduct Authority, you can complain to the Financial Ombudsman Service. But only if it’s a UK firm’s mistake, which in my case it was not. Three years on, I still shudder at the thought of being shoved from pillar to post.

The author is a freelance journalist