Buying currency online is just like buying anything else, but it can sometimes seem confusing and difficult. To help you navigate the deep, dark world of currency exchange, we’re going to take you through a comprehensive “buyer’s guide” to foreign currency.

Basic Things to Know Before You Buy Currency Online – Understanding the Terms

A regular purchase usually involves picking out something you like and paying the amount designated on the price tag. Buying currency works in a similar way, except the “price tag” is often hidden through the combination of a padded exchange rate and an additional fee. This makes it difficult to gauge exactly how much you’re paying when you buy Pounds, Euros or Rupees online. On top of this, sellers will often use confusing terminology to complicate things for you.

Let’s take a look at some of these terms – you’ll want to be familiar with them so that you can understand the market and track down good deals:

Sell Rate: This is the rate at which the seller will exchange your local currency for foreign currency. For example, if you’re travelling to the UK, this is the amount of Pounds you would get for your Dollar, Rupee or Euro.

Buy Rate: This is the rate at which the seller will buy foreign currency back in exchange for local currency. This is the amount of Dollars, Rupees or Euros you’d get when you come back from the UK with some Pounds left over.

Spread: Notice that Buy and Sell rates are different for the same currency? While this money may seem like “no man’s land”, this difference is called the spread (and it’s where the seller makes a good chunk of their money). Keep an eye on this spread – if it looks small, you may be charged fees elsewhere to compensate – but if it’s very large, the exchange provider may be significantly padding their rates for bigger profits.

Forward Rate: This is an exchange contract to be completed in the future, with a set rate today. For example, I may choose to set up a contract to buy NZD $10,000 for AUD $10,000 in six months’ time from a seller. In six months, even if the market price is higher or lower, the agreed rate still applies. These aren’t often used by individuals – they’re more for businesses that want to minimise currency fluctuation risk.

Commission or Fees: This is an additional charge that sellers may have when exchanging currency. Be wary of this – it can come as a percentage or a flat fee – or even both!

Ensuring That You Get a Good Deal

The most effective way to keep peace of mind when buying foreign currency is to shop around. Vendors will offer consistently changing exchange rates (sometimes more than once a day). You can compare the rates of different sellers through the common calculator tools found on their websites. Make sure to add any potential fees onto whatever figure this calculator gives you though – as some sellers fail to mention them until it’s too late.

While loyalty pays off in many areas, foreign exchange often isn’t always one of them. Don’t be afraid to use different providers for better rates. Your bank may give a good deal when you buy Euros online today, but Western Union may give a better deal on Pounds. Tomorrow may be a different story entirely. Shop around frequently, particularly when exchanging large amounts, as a slightly higher exchange rate can make a big difference when multiplied by each dollar.

At OrbitRemit our service includes a built in loyalty program (every tenth transaction is free with us) which brings down the cost of money exchange over the long run, especially if you’re sending money overseas on a regular basis.

Common Issues and Challenges

If you’re travelling, make sure that you plan your currency needs in advance. Small, frequent, one off exchanges overseas can come at the price of high fees and poor exchange rates. While it’s certainly an option if you get desperate, try not to rely on it. Convenient money is (usually) expensive money. If you’re not able to buy online, try to stick to big cities to exchange your cash – competition between providers means you’re more likely to get a good rate than in small towns.

While credit cards are a convenient way to transfer between currencies, they often come with nasty fees (sometimes as much as 3% of your overall transaction) and high interest rates. For example in New Zealand, Westpac charges a 1.5% fee, on top of a 1% Visa/Mastercard fee when withdrawing money at an overseas ATM. A further NZD $8 fee applies when using a debit card. These fees add up pretty quickly – and you can usually get better deals through online providers (by comparison, OrbitRemit offers a flat exchange fee of NZD $0 – $8).

If the exchange rate looks too good to be true, it probably is. Sellers that charge a high fee often give attractive exchange rates, and vice versa. Read every little bit of fine print before you commit to anything. Make particular note of the transfer time also – some providers will appear to charge a reasonable fee and exchange rate, but take a week to exchange the funds. Other providers, such as Paypal, will transfer instantly, but charge a much higher rate.

It’s a good idea to stick to well known, reputable providers to ensure that your money is safe from fraudulent vendors. A good exchange rate and a low fee is irrelevant if the money doesn’t come back to you.

Speaking of which, OrbitRemit can offer you low cost transfers between many countries with modest exchange rates. Check out our calculator on the top right hand side of the screen to see us in action.