Getting the most from your euro
by Paul Gosling
Cross-border shopping is becoming much more expensive for people from Northern Ireland, with the pound’s steady fall against the euro.
The pound was worth nearly €1.30 a year ago, but was little more than €1 at the beginning of this year. It is again heading towards parity, with a value last week of less than €1.07. In fact, sterling-euro parity is just about there for many people who will get precious little more than a euro for the pound at some banks.
CEBR, the Centre for Economic and Business Research, believes that parity or near parity could be with us for some time – with the pound possibly falling below the euro in the near future.
Charles Davis, senior economist at CEBR, says: “We could see further weakening [of sterling] on the basis that interest rates for the UK look likely to remain low for a further period.” The Bank of England’s programme of quantitative easing – increasing the money supply – will add to pressures on the pound, Davis adds.
CEBR predicts that after the next election, an incoming Conservative Government will cut public spending, increase taxes and further increase money supply. This, in turn, will lead to falls in bond yields and an even weaker pound, it believes. Any improvement in the sterling/euro rate is less likely to come from a stronger position for the UK than from weakness in the eurozone – in particular Ireland and Spain – says CEBR.
Where to buy the euro
With the pound likely to remain weak for some time, it becomes increasingly important to buy the euro at the best rate possible – especially for the many people in Northern Ireland for whom currency exchange is an every day business.
Andrew Hamilton of the International Currency Exchange (ICE) says that his firm’s online supply of euros is becoming more important than its chain of retail bureaux. The bureaux, and bank branches, find it difficult to compete with online operators, he argues.
“There are a lot of overheads that an online retailer does not have to deal with,” says Hamilton. “In some outlets [at present] you will get less than parity.”
Hamilton believes that firms of brokers are benefiting from customer disatisfaction with charges imposed by banks, which can be expensive and confusing. “You are getting the exchange rate applied by your bank,” he says. “No one really knows what that is. It can be the lowest of the day, or the best of the day. It could be 3%, 4%, 6% off the best rate of the day. And maybe there is a cash machine charge on top.”
An alternative recommended by ICE and other currency exchange brokers is to hold euros on a pre-paid card, changing currency when rates seem advantageous. With ICE, there is a charge of £1.75 per transaction, so if using cards it makes sense to make occasional large transfers, rather than regular small ones.
Petrol costs up
With sterling weaker against the euro, motorists should think again about crossing the border to buy petrol. The Consumer Council does regular comparisons of petrol and diesel cross-border prices. In September, petrol was on average 1.7 pence per litre cheaper in the Irish Republic than in Northern Ireland. On this basis, concludes the Consumer Council, few people will make a saving by travelling across the border to fill up.
The situation is different for diesel, where the price difference is more substantial. Last month diesel was on average 12.6 pence per litre cheaper in the Irish Republic. The Consumer Council’s regular price comparison can be accessed at www.consumercouncil.org.uk/cost-of-living-consumer-tips/fuel-price-watch/.
But the headline price for fuel is not the whole story. The quoted sterling price is more important than the euro price, unless you know the exchange rate applied by a garage.
Motorists can also find themselves paying more than they expect if paying by credit or debit card from a sterling account. A few petrol stations in the Irish Republic allow customers to process payments in sterling. But motorists who pay in euro using a sterling credit or debit card will usually pay additional charges, which can more than cancel the saving from lower fuel prices.
Beware the bank charges
The Consumer Council has compared the fees and charges applied by banks, which vary significantly. The cheapest financial provider is the Nationwide Building Society, which does not apply currency conversion charges or withdrawal fees in the Irish Republic.
Bank of Ireland, Barclays, First Trust, HSBC and Northern Bank all charge 2.75% per withdrawal, though this is variously described as a “currency conversion fee”, or “exchange rate adjustment”. Ulster Bank charges an exchange rate transaction fee of 2.65%, plus a transaction fee of 75 pence. Alliance & Leicester charges 2.95% as a currency conversion charge.
Abbey charges both 2.75% as a “currency conversion charge” and a £1.25 “overseas transaction fee”. Most expensive is Halifax, which charges 2.75% as a “conversion fee”, plus £1.50 per transaction.
“The Consumer Council advises consumers to check with their bank before travelling to the Republic of Ireland or abroad to see how much it will cost them to use their card to withdraw their card or make a payment,” says Alison Donnelly, its senior consumer affairs officer.
She praises Nationwide for not applying the same charges as the banks, adding that it is also good news that Bank of Ireland and Ulster Bank each allows their own customers to use their banks’ cash machines across the border without charge.
How many euros would I get for £500?
ICE €521
Northern Bank €519.75
Ulster Bank €517 (less £3 commission on some accounts)
First Trust €516.88
Bank of Ireland €500.90
* This is how much banks’ own customers would receive for £500 in sterling on 13 October.
Question
Q. What charges do I pay when I make a euro withdrawal from my sterling account from a cash machine? RS
A. We asked the Northern Bank to explain how it charges its own customers – the answer is surprisingly complex. Where a customer of the bank uses a cash machine of Northern’s sister company, the National Irish Bank, there is no charge: the exchange rate will be that applied by the Northern Bank on that day. Where a customer uses another bank’s cash machine in the Republic, the currency conversion rate is determined by Mastercard. There is also a 2.75% currency conversion fee. Where a customer makes a withdrawal from a euro cash machine within Northern Ireland, the currency conversion rate is the one applied by the owner of the cash machine, while Northern Bank will apply an additional currency conversion fee of 2.75%.