Business Personal Finance

Wednesday 24 July 2019

Banks charging outrageous margins for foreign money

Louise McBride

Louise McBride

IF you're travelling abroad over the next few weeks -- whether it's to catch the Rugby World Cup final in New Zealand this Sunday or to celebrate Hallowe'en with the kids in New York -- be choosy who you buy your holiday money from.

Don't be lured by promises of commission-free foreign exchange as this doesn't always guarantee that you'll get more bang for your buck. Be careful too to check the foreign exchange rate offered by your bank -- as many of these rates have hefty margins built into them, according to Helen Cahill, director of the financial advisors, Finance One.

"The foreign exchange rate you'll get from your bank will be about two per cent lower than the interbank rate (the rate at which banks and brokers buy and sell foreign exchange)," said Ms Cahill, who has more than 18 years experience in foreign exchange. "On top of that, the interbank rate could move two per cent in a given day. Yet the rate you get from your bank that day won't take into account movements on the interbank market. Given the volatility in Europe at the moment, there are huge swings on the interbank market during the day. The bank, of course, has to charge a margin on its foreign exchange rates to protect itself against market movements. But the foreign exchange rates quoted to customers by the banks are far away from where the market is trading."


To see how far away the foreign exchange rate you get for your euro is from what the banks get on the interbank market, the Sunday Independent asked financial institutions what rates they would offer a customer buying €500 worth of dollars or sterling at 3pm last Monday. Our survey included An Post, AIB, Bank of Ireland, Permanent TSB and Ulster Bank.

If you bought sterling from An Post at that time, you would have got 0.8374 sterling for each euro -- the lowest foreign exchange rate you could have bought your sterling at that day. At 0.8375, the second lowest rate was from Bank of Ireland, followed by AIB at 0.8384 and Permanent TSB at 0.8404. The best rate -- 0.846 -- was offered by Ulster Bank.

The interbank rates for sterling that day (that is, the amount of sterling that banks could buy for a euro) however ranged between about 0.86 and 0.87 -- between three and four per cent higher than the rates being offered by banks to their customers.

If you bought US dollars from An Post at 3pm last Monday, you would have got US$1.3081 for each euro -- one of the lowest dollar rates available then. At 1.3083, Bank of Ireland offered the second lowest rate, followed by AIB at 1.3096 and Permanent TSB at 1.3171. Ulster Bank offered the best rate, at 1.3216.

The interbank rates for US dollars that day however ranged between about 1.3380 and 1.3670 -- up to between 3.5 and 4.5 per cent higher than the rates being offered by banks to their customers.

Financial institutions here insist that foreign exchange rates on the interbank market are not comparable with those they offer to their customers. "The interbank foreign exchange market is typically for millions (of a particular currency)," said a spokesman for Bank of Ireland. The spokesman added that there is usually a "premium cost for any bank" to source foreign exchange cash for their customers "before any margins are applied to cover their own costs".

Ms Cahill however isn't convinced. "The biggest charges in foreign exchange are the margins that are embedded in foreign exchange rates," said Ms Cahill, who advised people to negotiate better rates when buying holiday money. "The larger the amount (of currency you are buying), the more you can negotiate."


The commission charged by a financial institution for foreign exchange, as well as the foreign exchange rate it offers, determines how much foreign currency you can buy with your money.

AIB, Bank of Ireland, Permanent TSB and Ulster Bank all charge one per cent commission -- within certain limits. With AIB, the minimum commission is €1.27 and the maximum commission is €6.35. With Bank of Ireland and Permanent TSB, the minimum commission is €1.25 and the maximum commission is €6.35. Ulster Bank charges a minimum commission of 32c and a maximum commission of €2.54. An Post doesn't charge commission but this doesn't make it the cheapest for foreign exchange.

"Although An Post's rate is commission free, its actual exchange rate is less attractive than those rates available from the clearing banks," said Ms Cahill.

An Post insists you'll still get more dollars and sterling if you buy your foreign exchange from it -- rather than a bank. "It's not about the foreign exchange rate," said a spokesman. "It's about the transaction."

Our survey found that while An Post was cheaper than most banks for foreign exchange, Ulster Bank was cheaper than An Post, even though Ulster Bank charges commission.

Sunday Indo Business

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