x Abu Dhabi, UAEMonday 22 January 2018

Transfers can detour money into week-long netherworld

Did you know that a bank doesn't necessarily follow commercial currency rates and that's where they make their money on remittances?

Gary Clement for The National
Gary Clement for The National

Perhaps it was the Currency Trading for Dummies book that has been sitting on my desk for months now that gave my game away. The reason why our cartoonist, Gary Clement, thought I'd look good wearing a dunce's cap in his illustration this week.

Then again, I am guilty of using one of the worst strategies to send my money around the world: via electronic bank-to-bank transfers. I do it because it's convenient. I turn on my computer at home, log on to my online account, fill out the details and press send. I thought it was easier than standing in a queue - as it turns out, with some of the smartest people in the land - at a currency exchange house, where your money arrives almost instantaneously at its destination and where you get more bang for your buck, or dirham in this case.

I hate to think how much money I've lost this way. So I guess I am more than deserving of that dunce's cap this week.

Then there's the issue of my money "disappearing" for seven to eight days before it finally lands in my account on the other side of the world. I could understand it taking that long if I'd posted it, but I guess that is one of life's little mysteries: where in the world does your remittance go before suddenly reappearing again a week later? I suspect, however, that somebody's making a profit on my remittance and it obviously isn't me - especially judging by how much it costs to send money around the world via banks.

Banks the world over are not known for their generosity. Sure, they need our money. Without it, one assumes they couldn't exist. But it doesn't mean they have to be nice about it, even if many of them are responsible for the credit crunch that kicked off the worst recession since the Depression. Besides, they argue they need to make a profit; after all, there is that long line of executives, begging bowls in hand, who queue up at the end of each year for their renowned six-figure bonuses (even if millions of us don't believe they deserve it).

In return, we get ever lower interest rates (what's yours? Mine is currently at 0.25 per cent) on our deposits, we pay higher interest rates for our loans and outlay more and more money for other services, such as remittances, even if some of the banks have magnanimously cancelled that Dh25 or so fee many of them charged us to send our money home.

But did you know that a bank doesn't necessarily follow commercial currency rates and that's where they make their money on remittances? Sure, they might use it as a "guide", but they will always make the spread work in their favour, all the more to better fill their coffers.

Take David Cooney, an average expat who has been in working in the UAE for the past four-and-a-half years. Originally from the UK, David has been an expat for more than 30 years, working in regions such as the Middle East and Asia, as well as Australia. His wife and family now live in Australia and every month, David sends money home to his loved ones. He's been doing it for years.

Unlike me, David is pretty smart when it comes to his monthly remittances. He watches the foreign-exchange rates. In fact, he studies them several times a day. And then he moves his money offshore when he knows the exchange rate is favourable. But, just like me, David has been doing this via his bank. A few months ago, when the Australian dollar finally dipped below parity with the US dollar, he knew it was the right time to send his money, even if it was a little earlier in the month than usual.

But what he sent and what his family received didn't add up. So he started looking more closely at what was going on. When he sends his money home via his online bank account in the UAE, David says the exchange rate is not shown on the page and that he bought his foreign currency at an unknown rate.

"The client can only fill in the fields on the telegraphic transfer page of his account with the amount in foreign exchange and then await for news of the conversion rate, which the bank has used AFTER the funds have arrived at their destination," he says.

"This allows the bank to choose a rate which may be grossly unfair to its client."

On September 22, he transferred A$5,985 (Dh21,546 at that day's rate) to his account in Australia. On this particular day, the Australian dollar was buying US$0.98. David says the rate continued to fall for another two days and even on October 1, was trading at US$0.96. His money arrived in Australia on September 23, when the commercial rate was still in the US$0.98 range.

To cut a long story short, David says his bank confirmed that the US dollar reference rate on September 22, at 9.24am, was Dh3.6781, which converts to an equivalent rate of Dh3.60 for the Australian dollar.

However, David says the commercial rate applied by his bank for his remittance was "actually 3.7336, meaning that I had been charged at least 3.7 per cent more than the reference rate to send the funds before adding in the fees. Using the US$0.98 rate, that equates to Dh799.60 paid over the reference rate on a simple telegraphic transfer."

Add in the Dh55.05 fee and he was charged a total of Dh854.65 to send his money home. Times that amount by 12 and you'll understand why he's angry. David has complained to his bank, as well as firing a letter off to the UAE Central Bank.

But if there's one lesson he's learnt, it is this: never use a bank to send your money home. And go where the smart people go: to an exchange house. I hear even the bankers do it this way

I've also learnt a lot from David. And now I'm ready to pass on that dunce's cap to somebody else. Any takers?