For businesses, getting a good foreign exchange rate can make a huge difference in your bottom line. But how do you get the best exchange rate? The issue is that there’s no one set global FX rate. Prices change all the time, and different suppliers have different rates.
Even small variations can have a big difference in how much money you keep in your pocket or receive. Here’s how we recommend you go about getting the best FX rate.
Foreign exchange provider research is key
It might take some time, but it all starts with shopping around to find which provider has the best exchange rate. But be careful when looking into foreign exchange services, or what the banks are offering, as these suppliers won’t typically offer the real exchange rate.
The rate you see has an added mark-up on the real exchange rate to make the transaction more profitable for them, so they can keep more of your money in their coffers.
Do your due diligence
Forewarned is forearmed, and doing your own research means you know what to expect as an acceptable foreign exchange rate. This doesn’t have to take up much time, either.
Before you start looking around at different foreign exchange options, do a quick internet search to find the current mid-market exchange rate.
This is a pretty good indication of what the banks are charging each other, which you can then compare against any offered FX rate and see if you’re getting a fair deal.
Don’t get confused
SMBs and first-time users may get confused by the different rates available when exchanging currency. There are different terms for different exchange rates.
These include, the spot rate, money rate, or forex rate. A particular rate on one of these doesn’t necessarily translate into the exchange rate you’re receiving.
The rate to pay attention to is the interbank exchange rate or the mid-market rate. It is the global exchange rate, at that moment, which is used by banks when they exchange currency.
Look at the total cost
The exchange rate is just one piece of the puzzle when trying to find the best FX rate.
While the supplier may advertise low rates, other fees can come into it which make their seemingly competitive exchange rate cost you more in the long run.
Things like commissions, foreign exchange fees, and card fees may not be advertised as part of the total cost. Some things to be aware of include:
- Commission prices – Be sure to ask around to see what commissions are being charged
- Zero fees or commissions – This usually means they’ve marked up the real exchange rate considerably to make up for it
Beware of the banks
We said this before, but an important point deserves its own section, just to reiterate. Banks will usually have the highest foreign exchange rates when compared to other providers.
This is because banks are, typically, trustworthy. People use them because they’re a respected institution, and we’re likely to just wear higher exchange rates as part of their service.
But it doesn’t have to be this way. For example, check out the difference in foreign exchange rates between Airwallex and the Big 4 banks.
Instead of going through the process of exchanging forex, you can simply order online. Ordering online allows you more chance to purchase and pay via card, or suppliers’ currency.
This allows you to reduce any extra fees, leaving you only out of pocket for the foreign exchange fee charged by your card’s supplier.
Pay in the local currency
Better than paying online, simply pay your supplier in their local currency. This way you avoid the need to exchange currency and avoid any foreign exchange fees.
And finally, lock in rates when they’re favourable
FX rates change by the minute. Some suppliers allow lock in FX rates if they’re favourable.