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# Converting Aussie dollars into Kiwi on the other side of the pond? Heather Ramsay warns of the retail spread that can cost you dearly.

Currencies
Converting Aussie dollars into Kiwi on the other side of the pond? Heather Ramsay warns of the retail spread that can cost you dearly.

By Heather Ramsay

I recently had a sum of money transferred electronically via Commonwealth Bank in Australia to my New Zealand bank account. This process was recommended by my advisor in Australia and like most people, I assumed that using the banking system was the safest, most straightforward thing to do.

Using the exchange rate on the day, I expected a certain amount to appear in my bank account – for mathematical ease, let’s pretend I was sent A\$100 000. Going by the exchange rate offered by banks in New Zealand that day, I was expecting around NZ\$125,800. I was shocked to receive NZ\$122,560. That’s NZ\$3,240 less than I expected.

I knew the difference couldn’t be that great due to fees or normal exchange rate fluctuations unless our dollar had plummeted dramatically, which it hadn’t. And I’d assumed that I’d get a similar amount for the dollar whether it was converted in Australia or New Zealand.  A cross rate works both ways, right? Well technically I suppose the answer is yes, but not once banks enter into the equation.

By now, some of you are probably already nodding your heads wisely and muttering “retail spreads”, a phrase I’d never heard before, and wish I’d never had cause to learn. I know there’s always a difference between buy/sell rates (the retail spread) but what I’ve learnt (at my own expense) is that retail spreads applied by banks within Australia to the AUS/NZD cross are nasty and the spread much wider than here in NZ.

Here’s how retail spreads worked against me.

Before sending the money out of Australia, the Commonwealth Bank converted it from AUS\$ to NZ\$, which I’m guessing is the norm unless you request otherwise. However, if the money had been sent in AUS\$ and converted at the New Zealand end, I would have got NZ\$3,240 more. Instead of going to me, thanks to those juicy retail spreads, that money has gone to the Commonwealth Bank.

This isn’t about comparing exchange rates between banks – banks within Australia have similar exchange rates and retail spreads although you might get a bit extra by shopping around. It’s about the difference between retail spreads applied in Australia and New Zealand. The trick is to get your money back here in AUS\$, then convert it to NZ\$ here. There are relatively easy ways to do this - open an Australian bank account with a bank here, use a reputable currency trader, or even send an AUS\$ draft or cheque.

However, getting banking staff to understand any of this, let alone do what you want could be a mission. For example, I had another A\$1,200 owing, so this time I instructed the person sending it to get a cheque/draft in Australian dollars and post it over. When it turned up, it was in NZ dollars – apparently the very helpful teller had talked my contact out of sending  Australian and said converting to New  Zealand dollars would save me bank fees on this end. It was for NZ\$1,485 but if I had deposited it as Aussie dollars here, and it would have been NZ\$1,533.

Only about \$50 this time but that's more money that has gone into the bank's pocket (in Australia), not mine. Multiply that by factors of 10, 100, 1000 and it doesn't take much to figure out that a big chunk of NZ-bound money is being gobbled up by banks in Australia every day.

To do a comparison, compare AUS/NZD exchange rates offered by banks in Australia and their New Zealand counterparts. For starters, try

Educate yourself, and don’t expect the “experts” to give the right advice. Oh, and pass the message on.

* Heather Ramsay is a freelance reporter

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I didn't find opening a AUS account in NZ very hard, BNZ did it over the phone no big deal.

Once you have that setup here you can use your business banking account in the NAB in Australia to do transfers to foreign acccounts that are in AUD.  Almost like any other AUD payment.  Or if you don't have that you can open an account with Travelex and they will let you do AUD purchases through their forex system.

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"The trick is to get your money back here in AUS\$, then convert it to NZ\$ here."

I think you misunderstand how currency markets work.

NZD are only lodged in NZ domiciled banks as AUD are only lodged in Australian domiciled banks.

Thus a NZD bank has a correspondent bank A/C in Australia to hold it's AUD and an AUD bank has a correspondent bank A/C in New Zealand to hold it's NZD.

When you instruct your bank to sell NZD and buy AUD you hit the bid of  NZDAUD currency pair)  and you lift the offer when selling those AUD to buy back NZD.

The reciprocal of the quoted rate makes it's clear in NZD payments and NZD receipts in the round trip trade where the costs will be applied if the spreads are being moved at trade time.

A commercial bid & ask quote quote might be 0.7795 - .07800 ( 1.2829 - 1.2821)

Buying AUD will cost more NZD if the bid is moved to the left and selling AUD will clear fewer NZD if the offer is moved to the right.

In all cases your NZD will be credited to a NZD A/C in NZ and your AUD credited to an AUD A/C in AUST., no matter where you conduct the trade or where you think your accounts are domiciled.

In addition to moving the quotes left or right an additional fee maybe charged by some price gouging operators.

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Try www.ozforex.com.au for Oz to NZ

Or

www.nzforex.co.nz for NZ to Oz

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If you'd used www.currencyonline.com instead of a retail bank to transfer the funds, you probably would have saved another \$1,200 on top of that.

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