Personal Finance

Low Fees Foreign Exchange Using CurrencyFair (Part 1)

I learned of the peer-to-peer foreign exchange facilitator CurrencyFair (CF) last month. CF is based in Ireland and was founded by four former bankers (with a blend of nationalities; Irish, Australian, Irish/Australian and Welsh)  who wanted to “build a currency exchange on the internet. It will be where people buy and sell currency from each other. Not from a bank”. The currencies supported are listed below:

From the various online feedback I read, they sound like a legitimate setup and so I decided to try them out.

Initial questions

Before opening the account, I sent CF an email to ask some basic questions. Some of the answers can actually be found in their FAQ, but I wanted to confirm them (in case they are outdated), and more importantly, I wanted to see if CF responds to questions in a timely manner.

I received a well-researched initial reply from an associate director in about one business day (considering the different timezones). Subsequent questions to the same person were replied within an hour when CF was opened for business. Great. CF did well.

Account setup

With the initial questions out of the way, I went ahead and register for an account. CF requires the following information — name, address, date of birth. (Note to U.S. users: being in Ireland, CF does not require the social security number). To verify identity, CF asks for a copy of the passport or photo ID and two proofs of address (phone bill, utility bill etc). These can be uploaded online to their website. After I uploaded the requested information, my account was verified and active the next day.

Getting money to CF

At CF, before any foreign exchange can be done, money must first be transferred into one of CF’s bank account. CF’s USD bank account is Bank of America (BOA). I explored a few ways to get money to CF’s BOA account:

  1. Wire the money (fees): Wiring the money to BOA would be fast, but it will also require me to visit my credit union and a domestic wire fee of $20. Scratched that.
  2. Use BOA’s internal transfer (free): BOA’s online banking supports intra-bank person-to-person transfer. I don’t have an existing BOA account so I considered opening a BOA account for this purpose. I chatted online with BOA’s rep to make sure that I can transfer money to CF. The rep told me I can transfer to any BOA account. I rephrased my question and asked if that includes a “Business account”; the rep then replied that I should call a number to verify. I did not call the number since I could get wrong information again; instead I asked a friend who has a BOA account to try to add CF into the transfer list. BOA’s online system responded that online transfers to business account cannot be added, just as I suspected. I am really glad I checked first; otherwise I would be stuck with an useless BOA account for the next few months.
  3. Use an ACH push (free): Many banks now support ACH pushes to other financial firms but these typically require account verifications (e.g. two small trial deposits). They also require the sender to be the owner of both accounts. Nevertheless, there are two institutions which I know of that support ACH pushes without these requirements. The two are ING Direct (Orange checking account, OCA for short) and USAA. Since I already have the OCA, I decided to try that. I found that OCA’s transfers are typically processed on the second business day. After adding one business day for the timezone differences, my money arrives at CF in three business days.

Great. I have managed to get money to CF without any fees. Now I am ready to check out CF’s foreign exchange system.

(continue to Part 2)

Reducing income during retirement to qualify for healthcare subsidy

The recent passage of the healthcare overhaul has prompted me to look closer at the issue of early retirement. There is a choice to work less and spend more time with family. Or even retire early and have the government subsidies your health care insurance by keeping income levels below 4x the poverty rate (see this Health Reform Subsidy Calculator).

The following is a list of items to reduce income:

  • If you have kids, and you want to help to pay for their college, plan to have more of it funded by 529 accounts. If you have to sell investments or draw down from tax-deferred accounts, that increases your MAGI.
  • Pay off mortgage if possible to eliminate income requirement. Again, same thing as college funding, if you have to sell investments or draw down from tax-deferred accounts, that increases your MAGI. Without a mortgage, you have less need to realize capital gains or draw down from tax-deferred accounts.
  • Derive income for ongoing expenses from tax exempt bonds (tax exempt income does not figure into MAGI).
  • Use a short term tax exempt fund to hold non-immediate cash needs instead of a high yield savings account. Perhaps top up the checking account once or twice a month. This reduces the amount of interest payments reported in MAGI.
  • Shift equity investments into lower yield equivalents, while still keeping the general composition of the portfolio reasonably unchanged. One potential candidate would be to invest in US LargeCap Growth instead of US LargeCap Blend. Does not work for US SmallCap (US SmallCap Growth has a poor historical record).
  • Invest in rental property and use rental income to fund ongoing expenses (rental income is typically offset by property depreciation).
  • Look into MLP investments that shield income for as long as the investment is not sold (you can control when to sell if necessary).
  • Delay signing up social security.

Even though it looks like I could potentially benefit from the healthcare reform if I retire early, I don’t agree with the changes. They simply penalize people who are successful and are a disincentive to work. This can’t be good for the economy. But that is another story.

Junk fees in AT&T landline service

Like many people, I find myself using less and less of the land line phone. A few years ago, I reduced my land line with AT&T from the “unlimited local” service to “measured” service. The current AT&T bill amount is $15.01 a month.

When I examine the bill closer recently, I find lots of fluff and taxes in the bill. Of the $15.01 bill, $7.28 is the cost of the “measured” service (I do not pay any additional toll charges) and $7.73 is the cost of taxes and all the other fluff, including

  • federal subscriber line charge,
  • rate surcharge,
  • state regulatory fee,
  • federal universal service fee,
  • CA high cost fund surcharge-A,
  • CA high cost fund-B,
  • CA advanced service fund,
  • California teleconnectFund surcharge,
  • CA relay service and communications devices fund,
  • local government fee,
  • 9-1-1 emergency system,
  • federal fees and tax, and
  • local fees and tax.

That’s right, 51.5% of my payment went towards paying taxes and junk fees; only 48.5% is the actual payment for the service. Except for the 9-1-1 fee of $0.04, I consider the rest junk fees. Something is wrong here.

I have identified my land line replacement and I am now testing out the service. The replacement is essentially a VOIP (voice-over-IP/internet) service. Once I am happy with it, I would port my existing number over and rid myself of these junk fees!