UK -> US money transfer

December 8, 2005 2:29 AM

Transfering money from the UK to the USA: When?

Suppose a guy has a sum of money temporarily sitting in a UK bank account. He lives in the USA and wants to transfer the money to his bank account there. It's not riches, but a big enough amount that for the first time in his life he's paying attention to the exchange rate. A 0.1 difference amounts to what could be a worthwhile difference (to him) in the dollar amount after exchange. He can move the money any time in the next few months or so.

Do it now, or wait a bit? Is the Dollar vs. the UK Pound likely to be stronger or weaker in, say, three months time?

Feel free to assume that the question is from someone who obviously knows next to nothing about exchange rates and international personal finance, because that would be a correct assumption.

Notes: This isn't a question about the mechanism of transfer, just the timing. Also, leaving the money permanently invested in the UK is not an option.

posted by normy to work & money (15 comments total)

Also keep in mind, that any overseas funds transferred into a US bank account in excess of 10K, automatically gets reported to the feds (IRS).
posted by Dag Maggot at 3:08 AM on December 8, 2005

Flip a coin. Seriously you should place zero confidence in nearly anyones forecast of fx rates three months out. The best indicator of what tomorrows rates will be are todays.

Just do the trade whenever. Its not like one currency or the other is screamingly misvalued, or is at risk of some sort of devaluation.
posted by JPD at 3:39 AM on December 8, 2005

I'll second the coin-flip. There was a similar discussion (regarding the US$ vs. the Euro or Yen or Pound or whatever) on either askme or mefi about 6 months ago and it seemed most commenters were convinced the US$ was in for serious trouble. Things went quite the other way.
posted by shoos at 5:51 AM on December 8, 2005

I find this page very helpful - x-rates.com. You can follow the exchange rate over time. The pound isn't worth as much now as it was in March 2005, but it's still much more valuable than it was in 2003. You can take the risk and wait, to see if it goes up or down. I think these have been historic highs for the pound, though - or lows for the US $. The Canadian $ is up above 80 cents for the first time since I was a child.

Also - you will want to research the cheapest way to transfer money - no point in there being a good exchange rate if you aren't being given it by the institution, or if you are being charged high fees to transfer the money.
posted by jb at 6:02 AM on December 8, 2005

The above posters are right when they say that future rates are always a gamble, but timing does matter. I have conciously avoided transferring money when the exchange was bad, borrowing from my (now) husband instead. If you have a general sense of what a good rate is (or has been over the last few years), and it isn't urgent, it is worth it waiting out bad rates. But not worth it sitting on an okay rate (the current one is quite good) waiting for a better - it just might get worse. The rate was 1.6 when I transferred money in 2003 - now it's about 1.7 (USD to the GBP). Which is pretty good - it's hovered around 1.4-1.6 for a couple of years before 2004 (when the USD went way down).
posted by jb at 6:07 AM on December 8, 2005

If you don't need the money, why not leave it in a UK investment?
Diversifying is always a good thing.
posted by madajb at 7:17 AM on December 8, 2005

Flip a coin?

Exchange rates are based on the changes in a country's risk-free interest rates. The higher the interest, the more the currency is worth. Why? Because then investors will buy that currency to take advantage of the higher interest rate. The theoretical formula for exchange rates is:

FutureRateOfForeignCurrency / CurrentRateOfForeignCurrent = (1 + ForeignInterestRate) / (1 + DomesticInterestRate)

So if you think US interest rates are going to continue going up, then wait until it levels out and then do the exchange. If you think the US interest rates are going down, then do the exchange now.

So this is all speculation, but I think UK rates are going to drop early next year, and US rates are going to hold. I'd say wait a bit to do the exchange.
posted by lpctstr; at 7:58 AM on December 8, 2005

RTFQ!
posted by matthewr at 7:59 AM on December 8, 2005

rtfq directed at madajb
posted by matthewr at 8:00 AM on December 8, 2005

lpctstr; - I agree 100% with you about interest rate parity,

But markets are often irrational in the short term. What you assume implies rationality.

Same with PPP based valuation mechnisms.

Unfortunately macroeconomists have an abysmal track record when it comes to currency forecasts.

Worry about transaction costs first and foremost. You can control them.
posted by JPD at 8:07 AM on December 8, 2005

jb: the Canadian dollar has been floating above the US80cent mark for like a year or so now (with only brief dips below), so it's not really THAT new :)
posted by antifuse at 9:07 AM on December 8, 2005

I used to do economics, but have completely forgotten everything.

However, I know interest rates impact exchange rates, so this might be helpful.
posted by djgh at 10:00 AM on December 8, 2005

If the options are now or three months, I'd add to the "find the cheapest way to do it, and then do it now" pile-on.

Three months isn't long enough for anything predictable to happen, even if you had an investment theory that you were willing to bank on.
posted by I Love Tacos at 10:07 AM on December 8, 2005

Market rates tend to react very quickly to world events (within minutes) whereas tourist rates move more sluggishly. When I need to do a transfer I watch the BBC's charts, which also show the tourist rates.

Only warning is that any transfer can take several days (3-10 depending on the US and UK banks involved) to complete the transfer, so make sure you do it well in advance of any need you may have.

Finally, if you want to be all Gordon Gecko and benefit from human suffering about it (and you can can afford to) wait for something bad to happen to the US. The Katrina hurricane sent exchange rates flying for a few days after it struck and there was a lot of speculation about oil supply.

If you are looking at a reccommendation for who to change the money with, then I can suggest Currencies Direct. I have used them on several occasions in the past few years (twice this year) and they tend to give a rate pretty close to the "market" rate when doing an exchange. If you change more than £5000, they don't charge any commission, and any less, it's only £15 commission. The receiving bank will charge between $10-25 on the wire transfer.

Do not use your bank to do the exchange, as they will not only charge you additional commission, but likely give you the "tourist rates" which can be more than 0.1 diffeerence from the market rate. When you are talking in the magnitude of thousands of dollars or pounds, this can make a big difference.
posted by DannyUKNYC at 10:11 AM on December 8, 2005

Thanks, everyone. I kind of suspected the answer might be of the "flip a coin" type. But like I said, I'm ignorant about such matters, so thought it worth asking. I appreciate everyone's input, so I've been generous with the best answer marking.
posted by normy at 1:03 AM on December 9, 2005