Locking exchange rate: Is it a good idea to fix the Swiss franc exchange rate?

The Swiss franc exchange rate fluctuates daily due to various economic, geopolitical, and monetary factors. For cross-border workers and expatriates in Switzerland, these fluctuations can significantly impact the conversion of their salary into euros. Some consider locking in their exchange rate through a forward exchange contract or a forward sale. But is this a good idea? Let’s explore the advantages and disadvantages of this approach.

What does locking in an exchange rate mean?

Locking in an exchange rate means securing a fixed rate in advance for a set period (3, 6, or 12 months). This is typically done through a forward exchange contract offered by a bank or a financial service provider.

With such a contract, the client agrees to convert a fixed amount of Swiss francs into euros each month at a predetermined rate, regardless of market fluctuations. In return, the financial institution guarantees this rate for the entire duration of the contract. However, in most cases—especially for individuals, cross-border workers, and even some businesses—it is often more advantageous to opt for a more flexible solution, such as a rate alert system, instead of committing to a forward contract.

3 advantages of locking in your exchange rate

• Protection against volatility: If the Swiss franc depreciates against the euro, you are protected and secure a stable exchange rate, which is particularly beneficial for cross-border workers.
• Financial stability: Knowing in advance the exact amount you will receive in euros each month makes it easier to manage your budget.
• Anticipation of unfavorable changes: If you expect the exchange rate to become less favorable, locking in a rate can help you avoid potential losses.

4 disadvantages of locking in your exchange rate

• Missed opportunities: If the exchange rate becomes more favorable, you won’t be able to take advantage of it and will be stuck with the fixed rate.
• Additional fees and margins: Banks often apply a margin on the interbank rate, which can reduce the benefits of locking in your rate. Is your bank doing this? Check in our exchange rate comparison.
• Limited flexibility: A forward exchange contract commits you for several months. If your situation changes (such as a major purchase, job loss, or unexpected expenses), the contract can become restrictive.
• Potential penalties: If you cannot meet the scheduled payments, additional fees may apply.

A more flexible alternative: exchange rate alerts

Instead of committing to a forward exchange contract, it is often better to choose a more flexible solution. Given the current evolution of the EUR/CHF pair, using an exchange rate alert service can be a smart choice. With ibani, you can set up an alert that notifies you when your target rate is reached.

This allows you to make your conversion at the best moment, without commitment and without additional fees imposed by a bank.

Conclusion

Locking in your exchange rate through a forward contract can be a good option if you seek financial stability and want to protect yourself from market fluctuations. However, this option also comes with several disadvantages, particularly in terms of flexibility and cost.

For most individuals and cross-border workers, using an exchange rate alert system like the one offered by ibani is often a better choice. This allows you to convert your money easily, at the right time, without the drawbacks of a rigid contract, and most importantly, without bank fees.

Note: This article is for informational purposes only and does not constitute financial or investment advice.