Converting Currency? Here's How You Can Avoid High Transaction Fees and Save Money

From high-tech to housewares, from inheritances to investment home purchases in Europe: Insiders, a capital market consulting firm, advises clients involved in foreign transactions and faced with high currency conversion fees

שטרות של דולרים
shutterstock

"We have something special to offer. We view our work as a mission. Our proven ability to save clients large sums of money – amounts that could make or break a business – recharges our batteries every single day," say Elad Hagel and Orel Ben David, the co-owners of Insiders, a capital market consulting firm.

Insiders was established in 2016 and is located in Bnei Brak's B.S.R. complex. Since its founding, Insiders has undertaken to make the capital market and foreign exchange worlds accessible to the general public. "For years we worked for companies and investment houses, we got to know the capital market world from both sides, not only as sellers and investors but also as traders," say the company owners. "In this way we came to realize that there are major gaps between people who would like to invest their money and energy in the capital market, and the information available to those already experienced in the field. Our goal is to effect cost savings for investors and for private and business entities. For those who want to become active in the foreign exchange market, we offer considerable knowledge, personal service packages, and major cost savings."   

From the outset, the company found itself dealing with a thorny issue related to transaction fees and currency conversion gaps. "Essentially, the foreign exchange market is the largest in the world; every trading day, trillions of dollars change hands, with eighty percent of the transactions being dollar purchases or sales," explain Insiders personnel. "Today's transaction totals reach three trillion dollars or more, depending on the global growth rate, which is almost constantly on the rise. Just to illustrate: the daily trading volume is up to 50 times the total trading volume on all US stock exchanges.

"This is a large-scale market with a wide variety of clients: private individuals who are relocating, developers investing in real estate, big businesses and corporations. The weaker links face exorbitant exchange rates and other charges. These may be private individuals, but also small and medium-sized businesses, importers, exporters, drop shipping businesses, contractors, small tech companies, startups, and more. The thing is that most people don't know there's a better alternative. That's where our service offerings come into play."

What are the types of transaction fees that banks actually charge for currency conversion?

"Not everyone knows this, but there are two types of transaction fees in foreign currency transactions: exchange commissions, and exchange rates. Exchange commissions are fees that almost everyone has to pay the bank in a foreign currency transaction; it's a certain percentage of the value of the conversion, for instance 0.2 percent. That's the normal fee for a private client. That is, in every transaction where a regular citizen converts foreign currency via a bank, he has to pay up to 0.2 percent of the transaction total. That's an official fee that the client is aware of.

לחיצת ידיים על רקע גרפים
"Today this is generally a margin of up to four agorot from the exchange rage"shutterstock

"Then there's what we call a 'hidden fee.' That's the exchange rate margin that the bank decides on. Of course it's not an official fee, but rather the foreign exchange margin; for all intents and purposes it's a transaction fee that can often reach very high amounts."

"Businesses can potentially lose tens of thousands of shekels on currency conversion"

Insiders staff explain that, in order to understand the foreign exchange gap, one must first be familiar with the commonly accepted exchange rates: the representative rate (sha'ar yatzig) and real-time rate (sha'ar ratzif). The representative rate is set on a daily basis by the Bank of Israel, based on a number of samplings conducted by the Bank over the course of the trading day. This rate is less relevant to currency conversion, and is used primarily for valuations and legal contracts. By contrast, the real-time rate is highly relevant. It's the present rate of a specific currency, and it's the true rate according to which foreign currency conversions and transactions are carried out.

"The banks, in addition to the official fee for the transaction itself, allow currency conversions to be done subject to a certain margin from the real-time rate, which they decide on. Today this is generally a margin of up to four agorot from the exchange rage," Insiders staff explain. "For example, if the dollar's real-time rate is 3.26 shekels, a regular citizen would pay 3.3 shekels when buying or 3.22 shekels when selling. That is, there's always a gap of four agorot. Ultimately, businesses that convert money frequently, or infrequently but in large amounts, can potentially lose tens of thousands of shekels in currency conversion. To calculate the margin, you multiply it by the total foreign currency sum that the client wants to sell or buy. To illustrate: if we want to purchase 10,000 dollars and the bank is offering a 4-agorot margin, the cost of the margin will come to 400 shekels. That's the sum we pay for the margin."

שטרות של דולרים בערמה
"First we determine the client's needs"shutterstock

Insiders: "The last few years have witnessed a steep rise in the number of businesses with clients from foreign countries." Photo: Shutterstock

The goal of Insiders, as the company affirms, is to save clients these large sums, and to significantly reduce the margin discrepancies. "We have a very objective process," Insiders staff explain. "We don't carry out the conversion ourselves. Rather, we interact with investment houses and entities that are licensed to engage in foreign exchange transactions, that have trading rooms and are, of course, under supervision. First we determine the client's needs, then we directly contact all of the relevant entities, and basically conduct a tender process with them, finding the client the best possible currency conversion terms.

"If, for example, a client wants to convert half a million shekels, he comes to us, and we figure out who can give him the best terms. First of all, we completely nullify the official commission on the transaction. That means there's no commission at all. Secondly, we conduct a kind of tender on the exchange rate margin. The financial entities give us the rates they're offering, and we refer the client to the one that's offering the lowest rate for the transaction at the time of purchase, or the highest rate at the time of sale. This is a significant cost reduction, the margin discrepancies are reduced from four agorot, or three if you're lucky, to very small amounts, even to a third of an agora."

500 shekels instead of 3,000

"I'll tell you a personal story," says Elad Hagel. "Someone I've known for years, a building materials importer, did foreign currency conversions with banks for 20 years, on poor terms. For every 100 thousand dollars he converted, he parted with 3,000 shekels. After he came to us and we did the comparison for him that we normally do for our clients, we referred him to one of the investment houses and he started paying 500 shekels, instead of the 3,000 he'd been paying before. This is a person who did transactions on a very large scale, amounting to tens of millions per month."

In yet another instance, a real estate developer came to Insiders with the intention of buying an investment apartment abroad. "He wanted to convert a relatively small sum, a hundred thousand dollars," Hagel says. "The bank offered him a margin of four agorot, as well as a commission, meaning he would have had to pay the bank a total of 5,000 shekels for the transaction. After we conducted our assessment, he paid just 750 shekels for the transaction."

Who can benefit from this service?

"Almost anyone, really. Private individuals who find themselves with large inheritances from abroad, citizens who've returned to Israel after an extended stay in another country, or vice versa, people going abroad for specific periods for work, or who fly frequently for work. The service can also be useful to businesses, importers, exporters, contractors, small tech companies, startups, companies that buy and sell vehicles, housewares, or basically anyone who has customers abroad and does transactions in foreign currency."

Insiders concludes by noting that, in the last few years, "there's been a steep rise in the number of businesses with customers from foreign countries. The Abraham Accords also contributed to the increase in foreign currency transactions, and the real estate world is highly relevant to this issue. For example, companies that want to raise capital to buy properties in Europe or the United States, and that offer initial investment sums of 150 thousand dollars. In such instances, either the clients need to do conversions, or the company does it for them. In any case these are large sums of money undergoing currency conversion. That's why it's important to consult with someone who can get significant savings for you before you conduct a foreign currency transaction."

Insiders – Capital Market Consulting Services

Address: 9 B Masada Street, Bnei Brak (B.S.R. complex)

Phone: 03-658-5959