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Whether you’re emigrating, paying for a child’s overseas school or university fees, or buying an investment property abroad, there are any number of reasons why you might need to move a large sum of money out of the country. When you do so, you naturally want to ensure that you’re not only getting the best rates by understanding how pricing in forex works, but that your transfers are done as efficiently as possible.
Estate agencies, wealth & asset managers and emigration attorneys also fall into the category of individuals who regularly send funds out of South Africa. But are they getting the best deal on currency conversions and fully understanding the complexities of international money transfers? When it comes to this process, the status quo for individuals seems to be following the path of least resistance: to use whichever institution they already bank with to facilitate that cross-border payment. That’s understandable, too. But, as Harry Scherzer, CEO of fintech disruptor Future Forex points out, that may be a costly mistake.
“By arming yourself with a little extra knowledge, you can quickly save yourself thousands of rands in forex fees through a provider who prices transparently offering the best possible rates,” he says. “Moreover, individuals who are transacting in forex should also look for a provider that makes the transfer efficient whilst providing excellent customer service, guiding clients along the way with their international money transfer.”
Understanding the basics of forex
So how does one begin their forex journey? According to Scherzer, an excellent place to start is firstly knowing how much money individuals can transfer at a time, then to understand how banks typically charge their fees on forex transactions.
“South Africans can take R1 million a year out without any approvals,” he says. “Having obtained the right approvals from SARS, known as an Approval of International Transfers (AIT), they can take a further R10 million a year out of the country without restrictions.”
“Typically, tax practitioners and financial advisers can assist with things like AITs but will charge a hefty fee,” says Scherzer. “Try to find a forex service provider, like Future Forex, who will assist with the application free of charge. We have successfully acquired over 35,000 approvals for our clients over the years at no cost to them, so this really is our bread and butter.”
But those kinds of fees aren’t the only areas where people lose out on forex transactions. Scherzer points out that a lack of pricing transparency by big banks and other traditional forex service providers can also end up being a costly exercise.
In order to understand why, he says, you need to know what kind of fees banks typically charge on foreign exchange transactions.
“Most people are probably familiar with processing fees,” says Scherzer. “These can be charged as a set fee or expressed as a percentage of the total transaction. A commission fee (usually based on a percentage of the transaction amount) may also be charged, as well as account maintenance fees.”
But, he cautions, these fees often only represent a small fraction of what individuals are charged for in transactions. The bulk of fees that people pay on such transactions instead come from less transparent exchange rate margins.
The inner workings of the exchange rate margin
“Sometimes also referred to as the spread, the exchange rate margin is simply the difference between the rate at which a forex service provider buys a currency and the rate at which it sells it,” the Future Forex CEO explains. “Because clients are typically unaware of the spread, it’s a lot easier for forex service providers to charge inconsistent and occasionally exorbitant margins.”
With this in mind, that the exchange rate margin is essentially the bank or forex service provider’s profit margin, let’s shine a light on just how costly the spread can be.
“Let’s say someone wants to send R1 000 000 out the country and convert it to dollars,” Scherzer explains. “If the exchange rate is currently at R19 to the dollar, because of the bank’s spread a client may get quoted a rate of 19.38 per dollar. While the additional 38 cents doesn’t sound material, when calculating the rand value of this fee, it equates to R20 000 as it’s a 2% markup on the current exchange rate.”
“This is a lot more significant than the R500 to R1 000 processing fee, but is far too often not brought to the attention of clients by providers,” he adds.
According to Scherzer, this is another area where Future Forex is different from banks and other forex service providers.
“At Future Forex, we are always fully transparent about the fees we charge on our transactions. “But,” he concludes, “we also know that fair and transparent pricing is only part of the mix.
We also endeavour to ensure that our clients receive excellent levels of personalised customer service. We know how awful call centres can be, so a dedicated account manager is allocated to each client to ensure we’re always a quick phone call or WhatsApp away. We do as much as possible to take the admin off the hands of our clients, and put the savings back into their pockets.”
Get in touch with Future Forex by visiting their website, emailing info@futureforex.co.za or calling +021 518 0558.
This post and content is sponsored, written and produced by Future Forex.
