Even in 2019, there are people out there who
like to keep their reserves in cash. This is perhaps why a cashless society
isn’t on the horizon, there is too much scepticism around not having the option
of anonymous, local money that isn’t held by a centralised or powerful system.
A lot of it is disbelief in the banking system
still, which has proved reckless and rotten on many occasions. In this sense,
there is still a hangover from 2008 where banks were going bust, unemployment
was at record highs and even countries were being bankrupted. It’s not only
this one crash though, the scandals are everywhere. In 2014, Lloyds
were fined £218m for fixing the LIBOR rate for the Japanese Yen. This comes
after a smaller fine of £28m in 2013, where the bank was found to pressure
employees into selling unnecessary products to clients.
It’s not just snake oil salesmanship and fraud
but outright incompetence, as the Royal Bank of Scotland was embarrassed by a bug in their system which
prevented customers from gaining access to their account. Two years later, the
same bank is fined a huge £399m due to their assistance in adjusting exchange
rates to their benefit.
This is just examples from two large UK banks.
The scandals, as you can guess, do not end there. Barclay’s have done the same,
if not worse, as well as Tesco bank and many others. It comes as no surprise
that we’re sceptical of these powerful institutions. To hand over our money
entirely to them may be presumptuous and naive.
Thankfully, there are FCA regulations and such which cover deposits
up to certain amounts (£85,000 in the UK). Whilst those that have more than
this can just split it into different banks to diversify their risk, the point
isn’t just if they’ll go bust and lose your money. The main issue is their
appetite to extort you, sell you unnecessary products and provide completely
opaque and unfair exchange rates on the false value of it being convenient.
Transferring Money Abroad
As a result of this, many opt to take cash
abroad, and who can blame them. You can’t trust their rates, but what’s more
ironic, is that it’s actually faster to fly with your cash to another country
and exchange it in person than it is to send abroad via a bank foreign currency
transaction.
Although it’s wise not to depend on banks,
taking cash may not be the answer. Many countries have limitations on the
amount of cash that you can walk in the country with (or at the least, you need
to declare it), which is usually around $10,000. It may cause problems with
Anti Money Laundering and officials, the last thing you want is an endless
interview in the airport to interrupt your holiday. It’s just not safe in
general though, in case of theft or losing it. You’re not insured for it,
there’s no regulations to protect it. Even if it did get stolen, you’re less
likely to get it back because there’s less of a trail. Unfortunately for those
sceptics, electronically is the safest way.
Of course, you can keep your money in your
bank and use an ATM abroad, but this is risky too. Firstly, you’re stuffed if
you find few ATMs, if they’re not secure and if they’re not going to charge you
a fee for it. What’s almost certainly more costly though, is the banks exchange
rate that it will offer you. You’re looking at around a 4% margin a lot of the
time. For context, that’s $40 lost on your $1k spending money.
It’s unnecessary, but they get away with it
because of the false belief that it’s the most convenient method. It isn’t.
Are
money transfer companies the answer?
Yes and no.
At the end of the day, there are times when
taking just cash over abroad is perhaps the most convenient. If you get paid in
cash for your work, for example, or you’re really only take a couple of
hundred, then taking cash and exchanging it locally may just be the easiest
option. Furthermore, those who are unbanked in their own country due to an
unstable banking system, like much of the 3rd world, then carrying cash may be
preferred.
However, if you’re prepared for a tiny bit
more effort or if you’re taking more money ($500+) then it’s certainly worth
browsing the money transfer companies. Convenience is certainly what they’re
striving for, as they’re young fresh fintechs and so the only inconvenience is
sussing out their service for the first time.
Many money transfer companies can be signed up
to in a matter of minutes, such as TransferWise, Moneycorp and Revolut. Other, older companies may simply be a phone call. The fintechs
have figured a way of offering the interbank exchange rate, which is
essentially what the banks themselves are getting (before they cut you an ugly
4% margin). Some companies such as TransferWise offer a 0.5% fee, whilst
Revolut offer it for free but cap the amount (EUR 6000, unless you pay for an
affordable premium monthly account).
The convenience here is that they’re much
faster at processing transactions. At most, you’ll need to do it a day in
advance. Many of the companies are regulated and you are protected, and they
certainly leave you more security than cash. All in all, it’s usually worth
using to save the extra $40. With a borderless card that many of these
companies are offering, you don’t even need to perform any exchanges. You can
literally use the prepaid debit card in most of the world and receive a fair
rate.