When Should I Buy Euros for my Deposit?

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 the best exchange rate for you 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 the money you have in your domestic account to accumulate interest and change it only just before signing 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 exchange-rate fluctuations by locking in a price today for a transaction that will take place in the future (up to 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.

The forward contract gives you peace of mind, as you know precisely what you will be paying for your property overseas, so you can budget your finances without any surprises. Hence, it is especially useful when buying properties off-plan with 3- or 4-stage payments over 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 cash you have and gives you time to arrange financing. 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 helpful if you receive a pension in 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 can plan your finances. Also, if a French mortgage is paid from a pound sterling bank account, you can ensure the monthly outgoings remain the same 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 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 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 peace of mind. If you want to save serious cash, talk to the experts.