Expats and Money transfers
As expats living in the Middle East, we transfer money back and forth between our home countries and where we live several times a year.
Who do we rely on to initiate these international transfers? Banks, remittance services, and currency exchange shops.
But who do we rely on to actually convert our hard-earned Dirhams into different currencies? I imagine you’re over-thinking this one, huh? Good.
We never really think twice before we ask our banks to also convert currencies for us. After all, it’s so convenient — literally one click of a button. The problem is, each time we do this, we essentially give away a little bit more than we should.
Currency conversion rate madness
Ever looked at your credit card statement after a trip abroad and noticed everything seems way more expensive than you thought it was?
Banks are for-profit organizations. They make money off customers in a variety of ways. One of the ways they make money is by charging customers premium for the service of converting their base currency to another currency.
This is why the USD/AED exchange rate you see on your credit card statement is way higher than what you see on Google or at currency exchange shops. Online USD/AED rates could be around 3.67 while your credit card statement rate would be 3.9.
Not a huge problem, but not peanuts either
“Ok but come on, how much could I really lose?” you ask. These premium rates start to make non-trivial dents in our wallets as soon as we start to deal with relatively large transactions.
Say you’re considering putting a downpayment on something expensive. Like a nice house, a fancy car, or a gold-plated billiards table (yeah, sometimes you just need one). Or say you’re about to send your big end-of-year bonus back home. When you use your bank to convert these funds into different currencies, you could lose upwards of $100 for every $80,000 you convert.
Over time, that’s not peanuts.
As is the case with most markets, competition is good for consumers. It lowers prices and increases quality. There exists a market called the foreign exchange services market. It can be classified as one of these highly competitive markets.
Companies exist whose business model includes earning very, very, very small fees on your international remittances. They basically specialize in offering their customers more competitive currency conversion rates than banks do. The services they offer help you save that $100 you were about to burn.
How does this work?
These companies deal with huge volumes of transactions from hundreds of customers each day. They help setup up individuals & companies with international remittance accounts. At the end of each day, several requests for multiple currency conversions & remittances land at their doorstep (ok fine, in their inboxes).
When they bundle these requests together, they benefit from economies of scale. They are then able to pass on these savings to you in the form of competitive currency conversion rates. In other words, instead of paying 3.9 dhs to convert every dollar to dirhams, you could pay 3.681 dhs. That’s roughly 6% savings. And if you recall our post about interest, interest needs to be your primary interest, and saving 6% per transaction is a big deal.
What’s the process like?
- You first get in touch with a company offering the service.
- You inform them how much money you need to send, from where, and to where.
- They quote you a conversion rate they can guarantee.
- You negotiate a little bit (in case you can get a similar rate at your bank).
- Once they have given you a competitive enough rate, you sign a form to confirm the transaction.
- You wire them the funds in your original currency.
- They convert the funds to your target currency, at the agreed rate.
- They send the converted funds to your destination account.
During my time in Dubai, I’ve used a company called International FX (IFX) a few times to send money to and from Dubai and have had a seamless experience. They are highly recommended.
Companies like this also offer more advanced services for individuals and companies needing them. These services are beyond the scope of this post, but I do recommend you keep this in mind in case you ever need it.
Are there any transaction minimums?
I asked myself the same question, and have even compared the profitability of using IFX versus my bank. Of course, there many factors come into play such as:
- Which currency you want to convert (sell)
- Which currency you want to convert to (buy)
- The amount you want to convert
So, although there is no one-size-fits-all answer on whether you should go through IFX or not, this calculation will help you reach a conclusion:
[IFX Quoted Rate] x [Your Amount] - [IFX fees]
must be more than:
[Your Bank's Rate] x [Your Amount]
for the use of IFX to make sense.
If you would like International FX to get in touch with you, you can either visit their site at www.internationalfx.com and request a callback yourself, or fill the form below and we’ll ask them to give you a call directly: