Exchange Rate Commissions - What you need to know?
If you make purchases from sellers based abroad then you might want to know about minimising the commission the financial organisation (credit issuers, payment processors, banks and so on) receives each time a transaction takes place which involves conversion from one currency to another, for example, from British pound to US dollars.
Why bother checking around?
This is because there are huge differences in commissions in foreign transactions, in terms of percentage, across different financial organisations. Some do not charge any commission while others impose, often heavy, charges. It is best to look around because if you are not careful, you will be contributing to the the already huge bonus pool the top managers get at these organisations.
As of 3rd November 2009, the rates of commission the following organisations charge (this list is not exhaustive, updated and not in alphabetical order):
Paypal - 2.5%. Add 0.5% cross border fee. This is waived for UK sellers registered with Paypal in EU when receiving payments in Euros from other EU states. Limit of £3.50 when using eCheques.
Barclaycard, Barclays - 2.75%
Citibank - 2.75%
Egg (Citibank) - 2.95%
HSBC - 2.75% (2.99% for credit cards)
Bank of Scotland/Halifax - 2.75% (2.95% for credit cards)
Natwest/RBS - 2.75% plus £1.25 (2.75% for credit cards)
Nationwide - 0%
Abbey - 2.75% (0% for Abbey Zero card., 2.75% for other card)
Source: From the above organisations websites. Retrieved on 03-10-2009.
Cryptocurrencies like Bitcoin, on the other hand, have very low transaction costs compared to other payment means such as credit/debit card, bank transfer to overseas bank accounts and so on. We will explain briefly about cryptocurrencies.
- Cryptocurrencies are a digital token which allows one to store value over time, spend and send it to other people.
- The transaction costs exist to pay the people who run their computers to verify transactions using cryptography.
- It is decentralised, that is, no one person, group or organisation manages the actual cryptocurrencies. Therefore, no one powerful organisation can shut it down.
- There are developers manage the computer code to maintain and improve it. Before the improvements are implemented, they have to get most of the people who run the computers to verify transactions to agree to these.
- No one can steal one's cryptocurrency unless their computer has been hacked or private keys are stolen.
There are some good introductory material out there explaining what it is. For example, WHAT IS CRYPTOCURRENCY?
Note that Bitcoin is suffering from longer transaction times due to sheer volume of people using it and the developers are taking their time to move forward in the most appropriate way to solve the problem. However, thia does not put people off from using it.
What can you do about it?
This depends on your circumstances. If you have credit cards and obviously bank accounts (how can you open a Paypal account without one), check the commission rate for these. In some cases you spend less by using a credit card or debit card. In others, use Paypal especially if you have a Natwest/RBS card which puts hefty charge for foreign transactions (yes, this goes towards the top brass bonuses and less extent other employees).
Alternatively, you can use any reputable cryptocurrency, such as Bitcoin, Ethereum, Litecoin and Zcash, to minimise transaction costs if the seller accepts them.
Before you execute a foreign transaction blindly, do the following:
Check the commissions for any credit and/or debit cards you have.
Use a calculator to work out the exact amount of commission for Paypal and any other card you have.
- Note that paying using eCheques limits the transaction fee to £3.50. This includes standard and foreign commissions (that's cool).
Use whatever method which incurs lowest commissions.
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