Exchanging Currency & Moving Money
I have received several questions from readers about how I exchange & move currencies for investments in the Euro Peer to Peer lenders I invest with. So instead of continuing to answer the same questions over and over via email, I decided to write a quick post on the subject as it appears to be useful information.
Wherever you live in the world, moving money around in your own/home currency is not typically a problem. When starting to diversify into investments in different currencies & countries however, unless you frequently have business in other currencies & countries, finding the safest and lowest cost methods can take some time.
For anyone in this situation, I have outlined below how I exchange, move and manage money in multiple currencies. I realize this will be rudimentary for some, however from the questions I receive daily, it should also prove useful to others.
Currency Exchange (Smaller Amounts)
TransferWise are one of the companies I use for exchanging smaller amounts of capital, and they have some benefits compared to regular high street banks as far as low exchange rates, what they call the “real rate” which is close to spot Interbank rates (although they do charge an exchange fee of 0.3%-0.4%, which does not seem like a lot on smaller amounts of exchange, but can be a significant charge if changing large sums). Also ease of use and speed of moving capital about are beneficial with TransferWise. They have a free debit card which can be used with multiple currencies which is really useful. Here’s a full TransferWise review I wrote a while ago.
Unfortunately, some Euro lenders don’t like to work with TransferWise because of the way they segregate accounts and hold money for each client. So if I’m using TransferWise for currency exchange with GBP to Euro, or USD to Euro, after the exchange I transfer the Euros to N26.com (discussed later) and distribute to investments from there.
Revolut is similar to TransferWise, but has no fees for most currencies in regular FX (Foreign Exchange) trading hours. They offer free exchanges with actual Interbank Exchange Rates for exchanges in most currencies on weekdays when FX markets are open. Revolut also offers a free debit card which can be used for purchases in multiple currencies around the world with no cost on most. Unfortunately, as with TransferWise, some Euro lenders don’t work well with Revolut for moving Euros about, so again once the currency exchange has occurred, I move the Euros to N26.com and distribute from there.
Currency Exchange (Large Amounts)
One of the things to be aware of with TransferWise and Revolut is that they do not have their own banking licenses. They are regulated by the FCA (Financial Conduct Authority) in the UK and authorized to issue electronic money, but they are not covered by the UK Financial Services Compensation Scheme (FSCS). So if they were to go out of business while your capital was with them, although your money should be protected to a certain degree as both companies store capital in regular banks, it might get complicated how to retrieve it. And even if it was covered, it would only be covered to the FSCS limit of £80,000.
With the above in mind, for large currency exchanges, personally I use Interactive Brokers (IB) with whom I have a trading account. Interactive Brokers are one of the largest securities brokers in the world. They offer commodity, stocks, bonds and currency trading in all major world markets at hugely discounted prices (more on that below). Clients capital is covered under United States banking and securities regulations which (in my opinion) are the best in the world (IB have a UK operation, but funds are still held under the US regulations). There are 2 levels of government backed protection with IB. The first is the non-profit (government backed) “Securities Investor Protection Corporation” (“SIPC”) which gives a maximum coverage of (currency equivalent) $500,000 (with a cash sub-limit of $250,000) and under Interactive Brokers excess SIPC policy with certain underwriters at Lloyd’s of London for up to an additional $30 million (with a cash sub-limit of $900,000).
On top of this, for cash over $250,000 (or currency equivalent) they have a “sweep program” which is free (but you must opt in) which sweeps any cash over the $250,000 SIPC limit into regular banks which are then protected by the government backed FDIC (Federal Deposit Insurance Corporation) to another limit of $250,000 per bank (and IB uses many banks). So basically you could literally have millions in cash which is all individually protected by the FDIC should IB ever go out of business (not at all likely).
In addition to all of the above cash protection benefits, Interactive Brokers offers currency trading at VERY low commissions, and you can trade currency with various types of order like “STOP” or “LIMIT” to set a specific price you want to exchange at should the spot (actual currency Interbank exchange rate) level get to it. So just like trading stocks & shares.
To give you an idea of IB commission rates, when I exchanged money to buy my home in Portugal last year (I exchanged US Dollars to 300,000 Euros) it cost me a total of $6 USD commission! That’s at SPOT rate (actual Interbank Rate) with no spread. To put that in comparison, to do the same through TransferWise would have cost me $1,303.94 in commissions. Plus I would have had the capital exposed with no government protection.
Here is the quote I got from TransferWise for converting €300,000 Euros from USD (click image to enlarge). I paid just $6 through Interactive Brokers.
There are many other benefits to using Interactive Brokers, from free currency transfers, to very low cost stocks, bonds & shares trading which are well beyond the scope of this post.
Be aware though that if you don’t use IB for trading regularly, there is a $10 per month account maintenance fee. That is waived if you use at least $10 per month in commissions, or if you have at least $100,000 account value with them (or currency equivalent). This means; if you’re not looking for a brokerage account, or if you’re only looking to change a smaller amount of money, it might be better to use Revolut or TransferWise which might cost a little more, but will save you the time it takes to open an IB account and cost to maintain it.
It’s also worth noting that IB pays interest on some currencies (more than banks in some cases) on cash held on deposit. So if you’re waiting for a better exchange rate and want somewhere to park capital, give Interactive Brokers a look.
Moving Money & Storing Multiple Currencies
If you currently live in the UK, you can take pride in knowing you have one of the best (and fastest) money transfer systems in the world (Faster Payments Service or FPS for short).
Europe is catching up to the UK fast system, implementing SCT Inst (SEPA Instant Credit Transfers) but is not quite there yet as far as coverage in most countries.
The USA is lagging a little behind Europe & the UK, currently using ACH (Automated Clearing House) transfers (which take 1-3 days) but is currently implementing RTP (Real Time Payments) services which should be ready by the end of 2020.
In your own country (or economic area as far as Euros go) and in your own currency, you probably know all this, correct? But what about transferring money to other countries? or storing and moving currencies which are not native to your own country within your own country? If you’re not careful, this can get expensive! Read on for how I achieve it at the lowest cost possible.
For storing Euros & USD (kept in the UK) I personally use Barclay’s which enable currency accounts to be added to a standard GBP account (at no extra charge or monthly charge). From there, Euros and USD can be moved about from country to country quite easily without incurring exchange fees (for currency already converted and stored in one of these foreign currency accounts). There are fees for sending USD worldwide (transfer fee, not typically charged by Barclay’s but by the receiving or intermediary bank). Euro SEPA transfers are typically free within the Euro zone and UK with an IBAN number.
Another option is Lloyds International who also offer currency accounts similar to Barclays, except Lloyds International accounts are domiciled in the Isle of Man or Gibraltar depending on the account currency. Lloyds International also have some minimum rules for opening accounts and fees for keeping them open so may not be for everyone.
The easiest and cheapest way to move and distribute Euros by far (in my opinion), is N26.com bank. N26 is a free, online & mobile Euro currency bank account which offers a free debit card and free Euro SEPA transfers. I’ve been using N26 for a couple of years for all of my Euro transactions and I can honestly say they are brilliant.
N26 has many benefits (beyond the scope of this post), but if you use Euros at all, give N26.com a look.
One thing to point out is that any money stored with N26 IS protected by the German government statutory deposit protection scheme, the “Entschädigungseinrichtung deutscher Banken” to €100,000 Euros. N26 is a real bank (unlike TransferWise and Revolut) so government protection is mandatory within the EU.
So, in summary I use either TransferWise, Revolut or Interactive Brokers to convert the GBP or USD to Euros, then transfer them to N26.com to distribute them to the Euro Peer to Peer lenders. The same when I am withdrawing funds from Euro lenders; it all goes back to N26.
There are many ways to accomplish currency conversion and capital management. I’m sure there are hundreds or thousands I don’t even know about. However from my experience (including some “not-so-good” experiences with a couple of different companies) the above work for me and they are what I use daily.
Whichever companies you decide on to help you with your money exchange, storage and movement, please make sure they are regulated in some way, and make sure you understand how your capital is protected should the company go out of business or become subject to fraud.
As always if you have comments, questions, concerns or ideas please email me as I’m always eager to learn.
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