There’s no question that investing abroad has been the smart move for South Africans given the persistent weakness in the rand, but a point often overlooked by those investing offshore is the 2-3% cost charged by the banks for simply transferring funds internationally.
The compounding effect of this cost is magnified over the ensuing years.
The S&P 500, including dividends, has returned about 13.5% a year over the last decade. The JSE All Share index, converted to USD, barely broke even over the same period.
That’s a powerful vindication of those who advocated for offshore investment a decade ago – and there were quite a few.
But the compounding effect of the initial 2% forex charge continues to weigh on performance in all subsequent years.
“The high cost of forex charged by the banks burns a hole in your portfolio every time you move funds abroad,” says Harry Scherzer, actuary and CEO of Future Forex. “Sometimes the costs are higher than 2%, and the amounts involved much larger than R1 million.”
To put some figures to this: your R1 million Single Discretionary Allowance (SDA) would have incurred fees of close to R20 000 by the banks, if not more, which would otherwise have gone into your investment.
Had we slashed the forex fee by half, resulting in receiving more dollars abroad, your portfolio investment would today be more than $3 000 (around R55 000) better off, given the growth of the index over that period.
Compound that over 30, 35 or 40 years, and the true cost of forex quickly becomes apparent.
A quick review of banks’ forex charges shows forex rates can vary between 2% and 5%.
How banks hide the true cost of forex
What are these forex costs and why are they so high?
Financial disclosure of forex fees by the banks is opaque, but is reckoned to be anywhere between R15 billion and R30 billion. It is usually rolled into “non-interest” income reported by the banks.
Equally opaque is the cost of forex to the client. One fee that is generally disclosed is the SWIFT fee, which is usually between R500 and R1 000 per transaction. Some banks will also charge ‘commission’ or ‘communication’ fees on top of this.
But the more important costs are the price at which a bank will buy and sell a currency. These spreads vary from one bank to the next and allow them to profit significantly, but the fact that they won’t disclose this fee transparently or consistently is hugely problematic.
Future Forex is cutting forex fees by up to 50%
Local fintech Future Forex has disrupted this market, leveraging its cutting-edge technology and its economies of scale to slash forex fees by up to 50% for individuals looking to invest offshore.
“This is a dramatic drop in forex fees for anyone moving funds abroad, and these savings compound into superior portfolio performance over time,” adds Scherzer.
Compounding – especially with dividends – turns small upfront costs into big opportunity losses over time.
An all-in-one forex solution
Scherzer says one of the key benefits of transacting through Future Forex is that every step of the international money transfer process is handled through a combination of its award-winning technology and the personalised service offered by a dedicated account manager, who is allocated to each client as soon as they sign up.
Any queries or status updates can be referred to the account manager without clients having to deal with impersonal call centres.
The Future Forex team also takes care of all regulatory requirements at no extra cost, such as Approval of International Transfer (AIT) applications for individuals sending more than R1 million offshore.
“Once a client is onboarded, we take care of all the logistics involved in international money transfers, including regulatory compliance and mandatory Balance of Payment (BoP) code submissions, but we are also 100% transparent in our costs – which is not something you are going to find with the banks.
“A lot of our clients are coming to us because they want to invest abroad, and they understand the high costs of forex charged by the banks,” adds Scherzer.
“They also understand how compounding works, and saving 1% of your initial capital can have a massive effect on portfolio values in 10 or 20 years.”
Award-winning technology
Future Forex automates the international money transfer process as far as possible for its clients, which not only reduces costs but also the time it takes to transact.
“The Future Forex mobile app, available on the Apple and Google Play stores, offers clients a convenient solution to make international payments, download statements, manage recipients and more, all within a few clicks,” says Scherzer.
Image: Supplied
Future Forex also has an automated WhatsApp messaging service to assist clients with transferring money internationally, entirely on their own.
This technology has won the company a strong list of awards, including:
- BCX Best in Technology 2024;
- Achievement Alley Industrial Excellence Award 2024; and
- GFM Review – Most Innovative Payments South Africa 2024.
Contact
Future Forex can be contacted via email at info@futureforex.co.za or by phone at 021 518 0558. For more information go to https://futureforex.co.za/forex/personal.
Brought to you by Future Forex.
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