When Should I Buy Euros for my Deposit?
Originally posted on & updated on 11th October, 2024
If you are looking to exchange large sums of money from pounds into euros over a broad timescale, as you would when buying your French property or any overseas property think about ways to get the best deal and protect your money against exchange rate fluctuations. There are two ways of securing yourself the best exchange rate within your timescale:
The Spot Contract
The Spot Contract is the most basic and popular foreign currency exchange product. It’s an agreement to buy or sell one currency in exchange for another. You have two days to settle the contract, at a price based on the prevailing “spot exchange rate” the current value of one currency compared to another.
Although the spot market lets you buy or sell currency as you need it, spot exchange rate movements are highly unpredictable, even during a single trading day. Upon receipt of cleared funds currency is available for onward transmission. Or you may feel that you would like to leave what money you have in your domestic account to accumulate interest and only change your money just before the signing of contracts. This can be risky, however, as the Euro and pound fluctuate in value leaving the final price in pounds uncertain.
Forward Contract
A Forward Contract lets you buy or sell one currency against another, for settlement no later than on the day the contract expires. Unlike spot contracts, a forward contract eliminates the risk of fluctuating exchange rates by locking in a price today for a transaction that will take place in the future (up to a maximum of 2 years). A 10% deposit is required to secure the contract and is payable within two working days with settlement due on the day the contract expires.
Thie forward contract gives you peace of mind as you know exactly what you will be paying for your property overseas, so that you can budget your finances without any surprises. Hence it is especially useful when buying properties off-plan with 3 or 4 stage payments of 18 months so you don’t end up going over budget. Also, because you don’t have to pay for the Euros until the maturity date it frees up any money you have and gives you some time to arrange the finance. All you will have to pay is a 10% deposit of the amount you wish to buy with the balance due on maturity of the contract.
This option is also useful if you receive a pension in pound sterling but live overseas. In this case you may want to be sure what your monthly income will be up to two years in advance so that you plan your finances. Also, if a French mortgage is paid for out of a pound sterling bank account you can ensure that the monthly outgoings are the same each month by entering into a forward contract.
If you can afford to take the risk and speculate on the foreign currency market in the hope of paying a lower price for your property then it may simply be best to buy the Euros spot as and when you need them but for most people the second option makes more sense.
Work with Currency Experts
You have two options: either use a regular bank which you are comfortable with or speak to our currency specialist who focuses exclusively on money transfers and could offer you better euro exchange rates and more personal service. Either way, your money is precious and what you really need is piece of mind. If you want to save serious cash, talk to the experts.
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