How to get the best conversion rate (GB Pound to US Dollar)?

December 23, 2010 7:25 PM

How to get the best conversion rate (GB Pound to US Dollar)? I've been working in London for the past year, trying to save up money for grad school when I return to the states. I was told that December was the best month of the year to do a GBP to USD conversion (not too sure how accurate that is). I bank with Barclays (England) and Chase (US) and am in the states at the moment. I've brought the money (in GBP) over because I thought it would give me more conversion options. I know that it can get complicated with conversion rates changing, various banks with their own exchange rates, etc. I'm willing to open an online bank account if that's the best option to transfer pounds to dollars. Are there any conversion geniuses out there who can help give me any tips? Many thanks! D
posted by Danah_78 to work & money (8 answers total)

I look at this recent historic (last 6 months to one year) rates at www.x-rates.com. I don't try to beat the market, but that way I can see whether it's an ok or awful time to switch.

(that said, sometimes you have no choice. Moved to the US when it was $1 usd:$1.6 cnd; moved back with usd savings to exhange only for $1.3 cnd. But could have been worse -- now it's near par.)
posted by jb at 8:52 PM on December 23, 2010

More Of an Interested side comment here.

> various banks with their own exchange rates

How the hell can one bank have a different exchange rate from another (obviously assuming we're talking the same currency)? I am completely uneducated in international finance. I'll follow this thread
posted by zombieApoc at 9:46 PM on December 23, 2010

Two banks cannot have too varying an exchange rate...it can be different, but if it was too out of whack, then there would be arbitrage.

Basically, as a dumb example, imagine you own pounds. The bank will give you 2 dollars for every pound. If you had dollars, they'd take 2.2 dollars for every pound they give you. This spread of .2 dollars is how the bank makes money.

If ANOTHER bank would give you 2.4 dollars per pound, and take 2.6 dollars per pound, you could make an infinite profit. You take a pound, get 2.4 dollars, then buy a pound at the other bank for 2.2 dollars. You now have more than yo started with: .2 dollars and a pound. Rinse repeat.

so what CAN change? Well, the spread can be variable. Anything at an airport, some whacky amex kiosk stateside...these places usually have really large spreads (so maybe they give you 1.5 dollars per pound, but would take 3 dollars per pound they sold you). Also, some places will charge fees. So what can you do on this front? Try and buy in a liquid market that has no fees.

"I look at this recent historic (last 6 months to one year) rates at www.x-rates.com. I don't try to beat the market, but that way I can see whether it's an ok or awful time to switch."

This is contradictory. You say that you are not trying to beat the market, but that you don't want to switch at an "awful time." That is trying to beat the market :) The fact of the matter is, you have to take a view if you want to decide whether now or then is later. Just looking at averages or whatever won't cut it, as such technical analysis is meaningless. If the pound where to precipitously drop, maybe it's just some day-long spurt of irrationality and it'll bounce back, or maybe it will keep losing strength.

Currencies are a very liquid, very big market. Trying to game it is tough. I say just change the money over in the cheapest way you can, unless someone who you think is really smart says to wait or something. But keep in mind that you can always get burned, because no one really knows.
posted by wooh at 11:31 PM on December 23, 2010

People who exchange currencies make most of their money from something called the "spread". If they will sell you 2 British Pounds for 3 US Dollars, they will charge you something like 2.1 British Pounds to buy your US Dollars back again. Different people may have tighter or narrower spreads, but you will never, ever, be able to make money by changing money at one dealer and changing it back at another. The other ways they make money are through fees: so much to change money, so much to wire it to an account held elsewhere, so much for getting a return receipt.

I have to exchange money every so often and I have had very good experiences with XE Trade. Their spread is comparatively narrow and they let me deposit money here (Australia) and receive it via EFT in a US bank account. Other exchangers (i.e., Australian banks and Bureaux de Change) want to send the money via wire, which is old-fashioned, slower, and costs me about $25 at each end. EFT is free and is typically a day faster.
posted by Joe in Australia at 12:12 AM on December 24, 2010

If your holding pounds, but know you'll be needing dollars in the future, then you're long GBP/USD right now.

When you say you "brought the money over" do you mean that you've brought it in cash, or that it's currently sitting in a £-denominated bank account? Hopefully it's the latter, in which case the cheapest way to convert the currency is to simply pick a reputable broker (who will give you a much better rate for the conversion than any high street bank) and phone them up to agree the rate (or do it online). Then you do a bank transfer from your £ account to the broker's account & they'll transfer the agreed $ to the $-denominated account you nominate, taking their cut along the way.

If you're £ are with Barclays, then you can do the transfer from them via their online-banking service.
posted by pharm at 4:08 AM on December 24, 2010

Your. Dammit.
posted by pharm at 4:09 AM on December 24, 2010

As with all questions like this, the first step is always to go to Money Saving Expert. They'll give you a list of the very best rates you can get on the high street or online (including comission).

It's pointless to try and guess whether rates are going to be favourable in December (as opposed to now, six days, six weeks or six months) unless you're trying to make money in forex. There are no simple rules otherwise everyone would make money doing it. I'd guess that your best bet at a good rate is to move all your GBP into a UK account that has free foreign withdrawals from its card (Halifax Clarity is one but watch out for the various fees other banks can charge) . That way you can withdraw USD at an ATM at the Visa rate and deposit with no other fees.
posted by turkeyphant at 7:47 AM on December 24, 2010

Don't trade based on a certain month, trade based on a certain institution. Pick a day to go into or call a few (4-6) banks and ask them about their rates, compare these to pick your go to exchange institution.

Wait until you need to exchange the money, exchange it then. Maybe you will need to set up a dummy checking account to get the best rate, but these are usually fairly painless to set up then close out a few weeks later.

Exchanging will always lose some money, so go ahead and collect interest on that in the meantime rather than trying to exchange early based on predictions of future rates. (If you get a substantially better interest rate in the destination country, it might become reasonable to move the cash early.)

While you always lose exchanging money, you can avoid getting completely ripped off by just asking a handful of institutions what their exchange rates are and avoiding the terrible outliers.

@ Two banks cannot have too varying an exchange rate... if it was too out of whack, then there would be arbitrage.

Some banks will have a wider spread, and some banks will tighten the spread for account holders.

So imagine if the "real" exchange rate is 1:1, one dollar should get you one pound if there were no middlemen. A bank will charge you $1.10 to get a pound, or £1.10 for a dollar. Another bank might have "better" rates, $1.05 per pound or £1.05 per dollar, but there's no possible arbitrage because you're still losing money in both transactions.

It's not until someone has a rate under the natural rate that arbitrage occurs, but that probably never happens.
posted by brownbat at 11:04 AM on December 24, 2010