We moved to Le Perreon in France last summer and used a broker to move our savings and other funds across, saving us a huge amount compared to if we'd used our high-street bank. We've now started moving across our pensions each month and are currently using our bank since our broker won't deal with such small amounts of money. Are there better ways to do transfer small amounts or am I stuck with the bank?
Currency brokers often have minimum limits, however there are alternatives to using the bank to transfer your pension to France. The rates offered by high-street banks for smaller transfers are usually very poor, and combined with high transfer fees this can seriously limit the amount of euros you receive each month. As an example, we at the Foremost Currency Group offer an Overseas Regular Payment plan which is a stress free way of sending funds around the world, ideally suited to those making monthly mortgage payments or looking to cash in on a regular pension income. By combining many clients' transfers together we buy the euros in bulk, which means you can still obtain commercial rates even on relatively smaller amounts such as your pension transfer. You simply set up a standing order each month and that's it; your euros are automatically sent to your French account on a monthly basis. Once you've taken into account the banks' transfer costs, poor exchange rate and possible commission fees, a client sending €1,000 (£855) per month could save over £1,200 per year; much better spent on Beaujolais for your cellar than helping to boost the bank's bonus pot!
How expectations of an interest rate hike are affecting Sterling's start to 2011
In recent months exchange rates have been quite volatile, with Sterling rising against other currencies only to fall back away. The main reason for the volatility is interest rate expectations in the UK. Interest rates have been at their record low of 0.5 per cent since early 2009. As a rule of thumb low interest rates mean little return for investors and results in a weak currency. In normal times, banks would raise interest rates to combat inflation as a result from the economy growing faster than its sustainable rate. A rate hike is thus a sign of economic strength. Usually rumour and speculation of an interest rate hike increases the value of Sterling and exchange rates rise, and indeed this is what we have seen in recent months.
Speculation has grown that the Bank of England (BoE) will have to start raising rates to combat rising prices, and this expectation has been priced into the value of the Pound helping to push exchange rates up. However these are not normal times. Usually a rate hike goes in tandem with rising incomes and strong economic growth, however despite rising prices there is no real sign of economic health. Indeed recent GDP figures shows the UK is actually in contraction, so many analysts think an interest rate hike in the current circumstances is unlikely. It's these conflicting opinions that are causing exchange rates to rise and fall. The BoE is well aware of the economic risks that inflation poses to UK economic growth. A key objective for the governor of the BoE, Mervyn King, has been to talk down the value of Sterling. When it comes to re-balancing the economy, a weak Sterling is attractive as it boosts exports. The production side of the economy, which produces most of our exports, is now growing faster than anything else, however this is not enough to combat the deficit alone.
In that sense, a stronger Sterling could threaten the one part of Britain's recovery that is providing growth – so, the BoE is unlikely to raise interest rates and risk the fragile economic recovery. Of course for those buying properties overseas a weak Pound is a bad thing! Due to risks of a hike de-railing the export led recovery, it's unlikely interest rates will go up anytime soon. Most analysts expect the soonest rates will rise will be the later part of 2011, possibly in July or August. When interest rates do start to go up, it's likely this will be the catalyst for a decent recovery in the value of the Pound. In the short to medium term however, due to the fragility of the recovery meaning interest rates need to stay low, exchange rates may well get worse before they get better.