5 key points to consider before exchanging currency
There are drawbacks, but making the wrong choice could either cost you a great deal in exchange fees over the long term, or have very serious consequences in the event of a cyberattack, for example.
To help you make a clearer decision and assist you in your choice, here are a few criteria to consider when selecting a financial intermediary for your foreign exchange transactions.
1. The cost of currency exchange
As the foreign exchange market is what is known as an OTC (over-the-counter) market, each financial intermediary sets its own rate. More precisely, the rate consists of the interbank rate (common to all institutions) plus the margin of the financial intermediary through whom you carry out your foreign exchange transaction. And it is this margin that makes all the difference: the higher it is, the less favourable the exchange rate is for you.
Our advice: if cost is an important factor for you, choose your financial intermediary carefully, as costs can vary by a factor of ten! In order of cost, from cheapest to most expensive, you have: specialist currency exchange services such as b-sharpe < ‘brick-and-mortar’ currency exchange bureaux < international payment companies < banks. For a brief explanation of how a rate is determined, take a look at our video.
2. The practical side (time spent, handling money, etc.)
Some financial intermediaries are more convenient to use than others. Providers that require you to physically hand over the money (such as bureaux de change or international money transfer companies) have several drawbacks in terms of convenience and security. You have to go in person during opening hours, both to the currency exchange bureau and to the bank to deposit (and/or withdraw) the money; there may be queues, and the currency in question may be out of stock (which was the case, for example, when the exchange rate floor was lifted in January 2015).
Our advice: currency exchange bureaux and international money transfer companies are financial intermediaries that require you to visit them in person. In contrast, with 100% online financial intermediaries, you save time and there is no need to declare the money at customs.
3. The security offered by the financial institution
Is the money you send to a financial intermediary for currency exchange safe? In the case of banks, the answer is a definite yes. Not all financial institutions specialising in currency exchange offer the same guarantees in terms of protection and security. What about, for example, an online currency exchange company that swears on its honour that it has sufficient liquidity to reimburse its customers in the event of a problem (such as hacking, embezzlement or fraud)?
Our advice: before using an online currency exchange service such as [name], ask what specific safeguards are in place to protect your money. If there is no insurance, you must understand that you run the risk of not seeing your money again in the event of hacking, embezzlement or fraud, as there is no guarantee that the company in question can financially absorb such an incident. Aware that security is a major concern for our existing and prospective clients, b-sharpe decided several years ago to protect its clients’ money by taking out insurance against fraud, hacking or misappropriation, covering transactions up to CHF 3 million.
4. The reliability of the financial institution offering to exchange currency
Not all currency exchange providers have the same reputation. On the one hand, there are the banks, which are reassuring but expensive—or even very expensive—and consequently offer unattractive exchange rates. Currency exchange bureaux, for their part, have lower margins, but they can be restrictive. On the other hand, there are the new players, who offer good terms, but to whom it may seem difficult to entrust your salary or the proceeds from the sale of your home without first assessing their reliability.
Our advice: if you decide to use a financial intermediary specialising in currency exchange, opt for companies that have been in business for several years and have physical offices you can visit, and ensure they offer every possible safeguard: client accounts kept separate from the company’s operating account, as well as insurance against fraud and phishing, are essential to ensure a 100% refund should any issues arise. Check customer reviews if in doubt; this will give you an immediate insight into the quality of the service offered.
5. The speed of transfers
To help you make your choice, the final point we recommend you consider is how long it will take to transfer your funds. Depending on the provider you choose, the transfer can take anywhere from 1–2 days up to 7 days. Find out how long the intermediary takes to process your transaction. Here too, you can check customer reviews to see if users are complaining about excessively long processing times.
Our advice: if you choose a provider specialising in currency exchange and speed is a key factor for you, avoid companies based outside Europe or outside Switzerland, Germany, Italy or Austria. If you choose a specialist broker in Switzerland, you should be aware that not only is the currency exchange carried out upon receipt of the funds, but the transfer is also made immediately, allowing you to benefit from very short processing times (within the same day or within 24 hours).
We hope these tips have helped clarify things for you and will enable you to make a better choice when selecting a financial intermediary for currency exchange.
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