A problem for employees working abroad is that they are often paid their salary in a currency that is different from their home currency. The majority of these people still have commitments in their home country while they are working abroad, such as family to support and mortgage payments. As a result, they need to exchange their salary or part of their salary into a different currency.
This can and is often done using the bank and many people don’t tend to question the exchange rate that they are given. Most banks will charge a transaction fee of around £25 and charge you up to 4% of the total transaction through the exchange rate they give you. This is where using an FX broker has its benefits, as due to their smaller overheads they can offer a much more competitive exchange rate, charging up to 1.5% and having no transaction fee.
2.5% may not seem like much of a saving, but as an example, if you earn $100,000 a year and exchange $80,000 into pounds and send it to the UK over that 12 months. By using the bank you can expect to pay somewhere in the region of $3200, where as using a currency broker would only cost $1200, saving you $2000 a year.
Regardless of the method used for salary repatriation another concern for those who are transferring their salary to their home currency is changes to the exchange rate. Exchange rates change all the time, but significant movements in the market can result in your salary being worth less when sending it home.
From April 2019 to April 2020 the GBPUSD rate at its lowest was 1.1435, a very favourable rate for people transferring dollars into pounds. However, during the same period, the rate peaked at 1.3475. If we go back to the previous example, the employee’s $80,000 would have been worth £69,952 in March 2020, where as in December 2019 it was only worth £59,368.
A £10,000 difference in your salary due to factors outside of your control is huge and is a risk you need to mitigate. This is something that a currency broker such as Currency UK can help employees with, through the use of a forward contract. With this service, we can ensure your salary remains the same each month when transferring it to a different currency, even if the rate moves against you.
A forward contract is ideal for those wishing to take advantage of, and guarantee, a favourable rate for a future date and can also be used to secure the exchange rate for any future bonus payments.
Our advice is to have an exchange rate protection plan for your foreign exchange requirements to ensure you can maximise the funds you are transferring to a foreign currency, rather than accepting the exchange rate at the time of each transfer and therefore overpaying.
To find out more about saving money on your international transactions and risk management for salary repatriation speak to a member of our team by calling +44 (0) 20 7738 0777.
Posted in Personal Resources on Apr 17 2020