Cutting costs on overseas currency transfers

Online currency companies can be a cheaper way to transfer large amounts of money to and from other countries like Australia. Photo/Supplied.

A growing number of people are using online currency transfer companies in a bid to cut costs.

Companies like Direct FX, NZForex and HiFX purport to undercut the exchange rates offered by main trading banks and offer low or no fee services for large transfers.

Bruce Patten, a mortgage broker at Loan Market, said he had noticed a trend in recent years of more people using online services when transferring large amounts of money into New Zealand to buy a home.

"It is a lot more prevalent now."

"People only ever knew of one way of doing something and now they know of other options."

"It is definitely a growing trend. It's a reflection of the growing use of the internet.

Online currency businesses have lower overhead costs compared to bricks and mortar banks as they do not operate retail stores.

As currency specialists they can save money by bulking up all the same currency transactions into one single transaction making it cheaper.

But Patten said people wanting to use online services also needed to consider the risks of using a non-bank.

"What you've got to consider is the liability of the corporate. The risk and return. You want to make sure your money turns up."

Online currency exchange services don't need to be licensed in New Zealand where as banks do need a license to operate and are monitored by the Reserve Bank.

Online businesses do have to be registered on the Financial Service Providers Register which means the company has to meet a number of requirements including being a member of an approved dispute resolution scheme.

That means if something goes wrong consumers will have a free and independent place to go to for help.

A Commerce Commission spokeswoman said there was no difference in the application of the Fair Trading Act between a physical store and an online trader.

"However, if the online trader was based overseas, there are some challenges in our ability to enforce the Fair Trading Act."

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So it's worth considering who owns the online firms and where they are based.

DirectFX is a privately owned New Zealand company while NZForex is owned by Australian share market listed firm OzForex.

HiFX is part of Euronet Worldwide which is listed on the Nasdaq.

The main challenge in trying to get a better deal on foreign exchange is the lack of a one-stop shop to compare the different rates offered by the banks and the online businesses.

People have to be prepared to do their own leg-work.

A quick online check of the main trading banks and the main online currency exchange website on Friday (October 30) morning found money could definitely be saved by using an online service.

Transferring $100,000 into Australian dollars resulted in a range of between $92,650 and $93,060 at the main trading banks.

While the online range was $93,802 and $94,270.

Main trading banks also charge fees which can vary between $15 and $50 where as an online currency firm may not charge fees for transactions over a certain amount.

Patten said that didn't mean people could not get a good rate with their bank.

"A lot of people don't realise they can approach their bank to negotiate on exchange rates just like mortgage rates."

He said the more money they were transacting the more likely they would be able to bargain for a better rate.