FOR ANYONE who needs to send money overseas on a regular basis, these are testing times. In the last 18 months, sterling has lost 17% of its value against the dollar and 13% against the euro. And although it has rallied to some extent over the past couple of months, currency experts are not expecting the pound to regain much more of this lost ground anytime soon.
This decline in value has been marked as the financial crisis has gripped the UK and the global economy. In short, sterling has been particularly hard-hit as the UK's economy is so dependent on the financial sector.
This will certainly not be news to Scotland's 100,000-strong immigrant population, who collectively transfer around £50 million a year to family members back home, according to foreign exchange comparison site Sendmoneyhome.org. Then there are the many thousands of people who own second homes overseas, whose mortgage payments will have become increasingly onerous.
Emmanuel Addy, a director at Sendmoneyhome.org, says that given the increased volatility in foreign exchange rates, anyone in these kinds of categories needs to make sure they have accurate and up-to-date information on exchange rates. And people should not underestimate the impact fluctuating exchange rates will have on the sums they send abroad. In a 16-month period between October 2007 and January 2009, sterling went from a 25-year high against the dollar of £1 = $2.11 to a 34-year low of £1 = $1.35.
Stephen Hughes, a director at Foreign Currency Direct, says: "The currency markets have been pretty hard-hit recently by the world economic downturn and recession and markets have become a lot more volatile than in times past. It is not uncommon to see daily currency movements of more than 2%, which on a transfer of, say, £50,000 could buy you at the high somewhere in the region of £1200 more than at the low."
For migrants paid in sterling and sending a considerable portion of their income back home to a country pegged to the dollar, such as Pakistan, then the rise in the strength of the dollar will have seriously dented the size of the sum being received by relatives back home.
A salary of £20,000 would have been worth $42,200 to those spending in dollars in October 2007, but just $27,000 by January 2009. This represents a loss of $15,200 in spending power back home over the period.
The situation is no more rosy for Scots with second homes in Malaga or Florida. For those with homes in Europe, for instance, in August 2008 £1 was worth 1.27. Fast forward to this week and that same £1 is now worth only 1.15 - a slump of 9%. To make things worse, house prices have collapsed around the world at the same time. In other words, they are paying more for a property worth considerably less than it was two years ago.
As well as keeping on top of fluctuations, Addy advises against using the UK high street banks for regular transfers, since they offer exchange rates that are less competitive, and apply transaction fees as high as £40.
If you are looking for a bank to transfer money to countries that have big immigrant populations in Scotland, such as Pakistan or Poland, he says it is worth checking on country-specific banks which have UK-based branches, as it is often free to transfer funds if you are an account holder.
What emerges is that the difference in exchange rates can be surprisingly wide. At the time of writing, someone sending £500 to Pakistan would have received an exchange rate of £1 = 131.18 Pakistani rupees with Habib Bank UK, but just 127.79 rupees for their £1 with Bank of Scotland. What is more, the latter would have charged a fee of £17.50 and taken between three and five working days to complete the transfer, whereas Habib Bank would have applied a fee of just £5 and transferred the money instantly.
For smaller transfers of a few hundred pounds, it also pays to check on some of the online providers, whose fees can be as little as 50p and can be quicker than banks. For large and regular transfers such as pensions or mortgages, foreign exchange specialists will be able to offer extremely competitive exchange rates without charging a fee or commission. According to Addy, using a specialist foreign exchange provider can boost the amount received overseas by as much as 30%.
Over the longer term, these payment charges can really mount up. Currency transfer specialist Foreign Currency Direct (FCD) calculates that on a 15-year French mortgage of £800 per month, the saving using its regular payment plan would be more than £12,500 when compared with a typical high-street bank (assuming the typical difference between bank and its exchange rate of 2% and current average transaction charges).
Deepak Goyal, an international payments specialist with foreign exchange group Currencies Direct, says that an increasing number of Scots are waking up to the financial benefits of using a specialist foreign exchange firm when transferring money overseas.
These two specialists assign each customer a specific broker, which gives them a set of eyes and ears in the market that they may not otherwise have. By keeping their broker aware of their own personal requirements, they are in a much stronger position to take advantage of those often short-lived spikes in currency prices, and are able to secure their currency during even the shortest window of opportunity.
Both also offer customers the option to fix at a specific exchange rate for an agreed sum to be transferred for up to 24 months. This is effectively a hedging arrangement for individuals of the kind typically only offered by banks to their large business customers.
Goyal explains: "Say at the start of the year a client with financial commitments overseas decides they want to lock into the current exchange rate. They will say, I earn X and I think the current exchange rate is a good one so I want to lock in.' That means that any transaction they make within the agreed sum for that year will be at that exchange rate no matter what happens to rates after that. So the client gets certainty about the amount of sterling dollars or euros they will have for that year."
Stephen Hughes of FCD says there has been a 41% increase in the number of clients taking out regular repayment plans in the last year, while Goyal says his company has also seen unprecedented growth in demand for its salary protection product.
He concludes: "The message from clients is that they are increasingly taking charge of their finances and playing a more active role.
"Whereas before they would have been paid in pounds and had payments to make overseas but just let the bank do it, increasingly now they are taking a more active part in transactions."
Those who are still out of pocket from the big currency swing, take note.
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