Considering Offshore Investments? Watch Out for This Forex Trap!

It’s undeniable that investing internationally has proven to be a wise choice for South Africans, especially with the rand’s ongoing decline. However, a common oversight for those exploring offshore investments is the 2-3% fee charged by banks for transferring funds abroad.

This cost can compound and significantly impact returns over the years.

The S&P 500, dividends included, has generated approximately 13.5% annual returns over the past decade, while the JSE All Share index, when converted to USD, has struggled to maintain its value during the same timeframe.

This strongly reinforces the arguments made by those who promoted offshore investments a decade ago – and there were many advocates.

Nonetheless, the lingering effect of the initial 2% forex fee continues to suppress performance in the following years.

“The exorbitant forex costs imposed by banks deplete your portfolio every time you transfer funds internationally,” states Harry Scherzer, an actuary and CEO of Future Forex. “In certain instances, the fees exceed 2%, especially for amounts over R1 million.”

To illustrate, if you were to utilize your R1 million Single Discretionary Allowance (SDA), you could incur fees approaching R20,000 from banks, which could have otherwise contributed to your investments.

If we had managed to reduce the forex fee by 50%, resulting in receiving a greater amount of dollars abroad, your portfolio would currently be better by over $3,000 (approximately R55,000), given the index’s growth during that time.

When compounded over 30, 35, or 40 years, the real expense of forex fees soon becomes evident.

A brief comparison of bank forex rates indicates that these charges can range from 2% to 5%.

How banks obscure the real costs of forex

What do these forex charges entail, and why are they so exorbitant?

The financial disclosure surrounding forex fees by banks is often unclear, estimated at between R15 billion and R30 billion. These figures are typically grouped into “non-interest” income reported by the banks.

The client-facing costs of forex are similarly ambiguous. One fee that is typically mentioned is the SWIFT fee, which normally varies between R500 and R1,000 for each transaction. Additionally, some banks may apply ‘commission’ or ‘communication’ charges on top of this.

However, the more significant costs are the rates at which banks exchange currencies. These spreads can differ widely among banks, allowing them to profit considerably, yet the lack of transparent and consistent disclosure of these fees is a serious issue.

Future Forex is reducing forex fees by up to 50%

Local fintech company Future Forex is revolutionizing this market, utilizing advanced technology and economies of scale to reduce forex fees by as much as 50% for individuals wishing to invest abroad.

“This represents a substantial decrease in forex costs for anyone sending funds internationally, and these savings compound into enhanced portfolio performance over time,” adds Scherzer.

Compounding – particularly with dividends – transforms minor initial costs into significant opportunity losses over the long term.

An all-in-one solution for forex

Scherzer emphasizes that one of the main advantages of using Future Forex is that every phase of the international money transfer process is managed through a blend of award-winning technology and personalized service provided by a dedicated account manager who is assigned to each client upon registration.

Clients can direct any questions or request status updates to their account manager, avoiding the need to deal with impersonal call centers.

The Future Forex team also manages all regulatory obligations at no additional cost, including Approval of International Transfer (AIT) applications for individuals transferring over R1 million overseas.

“Once a client is onboarded, we handle all logistics involved in international money transfers, including regulatory compliance and mandatory Balance of Payment (BoP) code submissions. Additionally, we maintain complete transparency in our fees – which is something you won’t find with traditional banks.

“Many of our clients approach us because they want to invest internationally and are aware of the high forex costs charged by banks,” adds Scherzer.

“They also grasp the concept of compounding, realizing that saving even 1% of their initial capital can profoundly impact their portfolio’s value over 10 or 20 years.”

Award-winning technology

Future Forex automates the international money transfer process as much as possible for its clients, leading to reduced costs and quicker transactions.

“The Future Forex mobile app, available on both Apple and Google Play stores, provides clients with a convenient method to execute international payments, download statements, manage recipients, and more, all with just a few clicks,” explains Scherzer.

Future Forex also offers an automated WhatsApp message service to aid clients with their international money transfers independently.

This innovative technology has garnered multiple awards for the company, including:

• BCX Best in Technology 2024;
• Achievement Alley Industrial Excellence Award 2024; and
• GFM Review – Most Innovative Payments South Africa 2024.

Contact

For inquiries, reach Future Forex at info@futureforex.co.za or call 021 518 0558. For additional details, visit

Brought to you by Future Forex.

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