I feel this blog post would be better if you just described what a spread is in a less roundabout way - but it's still very important people know about spreads (and I'm a bit jealous because I've been planning a similar blog post for a while!)
I feel like "No exchange fees" is trickey. I ask my friends where they think is cheapest to swap money, they all base it on the fees. "Best go to xxx because it's commission free". Currency exchange services blatantly are aware of this and are exploiting it pretty hard. I'm no expert, but that sounds like good starting conditions where different exchange services can charge a lot and don't really need to worry about competing with each other. I'm pretty sure average consumer ignorance and unwillingness to shop around beyond how much various services charge in commission is costing everyone dearly.
Spreads aren't limited to just banks either. Paypal used to be one of the worst offenders from what I recall, offering horrific profiteering spreads. To be fair to them though, nowadays they have improved.
Interestingly, Stripe advertises as "No hidden fees". I emailed them a while back and asked if they pass on the spreads they get from the bank to the user as I would consider it a hidden fee if they modified the spreads they were provided - I was pleasantly surprised by their response saying they would also consider it a hidden fee and offer the same spreads as they have access to. To me this was huge, and a massive hallmark of a company that's doing it right and treating their customers with respect.
Online poker also has been known to offer very expensive spreads when converting between currencies. Some of them felt very unfair and left a sour taste in your mouth - convert $100 to £80, then that £80 a second later back to $USD you would lose several percent of the original amount.
One of the worst and most expensive things you can buy are travelers cheques. Absolute rip off, I always avoid these. The security they offer you is the only plausible upside to them, which is a pretty marginal upside in my opinion. Post Office today is quoting £1 as $1.564, when the actual current market rate is $1.61358. They make 5c profit on every £1 you convert. Every £100 you convert, they chop of $5. That's only the first stage as well, if you have any left over be prepared to be raped when you want to swap them back.
When I travelled around the USA, I researched the best way to spend my GBP out there with the cheapest spreads as I was on a shoe string budget. Credit card won hands down. When I walked in the bank to get the credit card, I asked them if they offer market rate on the currency conversions. They said yes. When I got back, they had charged more than market rate on every transaction (I was expecting this). I complained and told them they lied to me, and got some free money. It's a good travel tip if you harbour general resentment for banks, that scenario will just keep re-enacting itself and is a cow you can keep milking if you can be bothered.
Best way to exchange cash is to meet up with a traveller coming in the opposite direction. Work out the market rate, swap the cash and be on your merry way. Possible startup idea?
If you're in the US (or can open a US bank account), I've always had good luck with Charles Schwab's ATM card. They don't charge a foreign transaction fee (which is where you really get killed with US credit cards - my Amex Blue has a 2.7% - way more than any difference in spread) and they refund your ATM fees (even foreign ones). Sometimes their system doesn't automatically catch the ATM fees, but it's generally pretty good and I've always had a good experience with customer support getting the missing ones refunded. While I haven't tried to match up the mid-market rate for the exact moment I made the transaction, it's always seemed to be close enough inline with what the range on that date was that saving the $2-5 in ATM fees + no foreign transaction fee if I use it as a Visa would have greatly made up any difference in the spread.
Do UK credit cards generally not charge foreign transaction fees? There are still some in the US, but a lot are either higher end cards (Amex Platinum) or geared specifically at travelers.
Here in the UK they charge on everything, IIRC when I went to USA they charged something like £5 per withdrawl, then the amount you got would also have an expensive spread. The £5 per withdrawl was irritating as it forced you to withdraw $200+ a time, the more you took out the cheaper it would be overall.
This is normally the typical US ATM fee which UK banks don't bother to try and return to you, AIUI. The credit card spread by itself isn't that bad; it's better than almost all alternatives except for pre-pay currency cards (not as secure or convenient as a credit card especially if you get saddled with a big pre-auth somewhere) or shopping around for the cheapest cash conversion (in which case you end up with a wad of high-value notes you can't spend if you're not careful).
From the "guide" that came with a new "Premier" Lloyds Visa Debit card a few days ago: They charge 2.99% on all FX transactions and a further 1.5%, min £2, max £4.50 cash fee.
FWIW my Australian credit card with Westpac charges foreign exchange fees, about 2.5% if I remember correctly. It's only recently that they've added those fees as separate line entries in the account.
> meet up with a traveller coming in the opposite direction. Work out the market rate, swap the cash and be on your merry way. Possible startup idea?
Ha, I've thought the exact same thing. Sitting in KVB Kunlun Sydney a couple days before going to Japan, buying a few thousand dollars worth of yen, and watching recently arrived Japanese with bundles of yen buying dollars. I wanted to stand up and say, hey, anyone wanna buy some dollars at the market rate, I'll even round up to your smallest note?
Doubt there's all that much money in it though, and people would naturally be wary of meeting strangers while clutching bundles of cash. It wouldn't surprise me if once you did all the sums, in order to make any kind of money you'd have to charge the same as the rip-off exchange offices.
That's the idea behind currencyfair.com. The user experience is a little clunky but the rates are much better than anywhere else I've found (I send more than $2k a month to the UK so I've shopped around a lot).
I feel like "No exchange fees" is trickey. I ask my friends where they think is cheapest to swap money, they all base it on the fees. "Best go to xxx because it's commission free". Currency exchange services blatantly are aware of this and are exploiting it pretty hard. I'm no expert, but that sounds like good starting conditions where different exchange services can charge a lot and don't really need to worry about competing with each other. I'm pretty sure average consumer ignorance and unwillingness to shop around beyond how much various services charge in commission is costing everyone dearly.
Spreads aren't limited to just banks either. Paypal used to be one of the worst offenders from what I recall, offering horrific profiteering spreads. To be fair to them though, nowadays they have improved.
Interestingly, Stripe advertises as "No hidden fees". I emailed them a while back and asked if they pass on the spreads they get from the bank to the user as I would consider it a hidden fee if they modified the spreads they were provided - I was pleasantly surprised by their response saying they would also consider it a hidden fee and offer the same spreads as they have access to. To me this was huge, and a massive hallmark of a company that's doing it right and treating their customers with respect.
Online poker also has been known to offer very expensive spreads when converting between currencies. Some of them felt very unfair and left a sour taste in your mouth - convert $100 to £80, then that £80 a second later back to $USD you would lose several percent of the original amount.
One of the worst and most expensive things you can buy are travelers cheques. Absolute rip off, I always avoid these. The security they offer you is the only plausible upside to them, which is a pretty marginal upside in my opinion. Post Office today is quoting £1 as $1.564, when the actual current market rate is $1.61358. They make 5c profit on every £1 you convert. Every £100 you convert, they chop of $5. That's only the first stage as well, if you have any left over be prepared to be raped when you want to swap them back.
When I travelled around the USA, I researched the best way to spend my GBP out there with the cheapest spreads as I was on a shoe string budget. Credit card won hands down. When I walked in the bank to get the credit card, I asked them if they offer market rate on the currency conversions. They said yes. When I got back, they had charged more than market rate on every transaction (I was expecting this). I complained and told them they lied to me, and got some free money. It's a good travel tip if you harbour general resentment for banks, that scenario will just keep re-enacting itself and is a cow you can keep milking if you can be bothered.
Best way to exchange cash is to meet up with a traveller coming in the opposite direction. Work out the market rate, swap the cash and be on your merry way. Possible startup idea?