If you’ve ever had to transfer money abroad then you probably know that the fees and costs you incur can be surprisingly and alarmingly high. Whilst many may simply accept this as the ‘way it is”, savvy consumers are always looking for more frugal ways to transfer their hard-earned money. Let’s take a look.
There are many different reasons that both individuals and businesses transfer money overseas or across borders. A regular Joe may have family living in another country and send them a few bucks every now and then. Semi irregular Jonny’s like me working online, sometimes have to pay foreign suppliers or companies for services. And of course, businesses routinely have to transact internationally whether to buy goods from abroad, or they may even conduct entire offshore payrolls. Whatever the reason for sending money abroad though, you can always rest assured that it tends to cost far more than it perhaps should.
If you rely on your bank to deal with an international payment for you, then they will take full advantage. Firstly, they will use an unfavorable exchange rate and will then levy a transaction fee which could be a set amount or it could be a percentage. On the other end, the recipient’s bank will also apply a fee (more on receiving monies later) and any intermediary banks who handle the monies will also apply a fee. To cut a long story short, in extreme cases it can sometimes cost a customer nearly $300 to send $1000 overseas. Ouch.
And did you know that Paypal also operates a very similar business model? When it launched, Paypal made international payments faster and easier than ever and promised to revolutionise the sector. Unfortunately, it seems that their household name status and gargantuan market share seems to have caused them to take full advantage of their customers. Worst of all, with Paypal, the funds often stay within Paypal which arguably means they should not be charging you at all.
Online Money Transfer Services
Let’s imagine you book that dream holiday of a lifetime to Tulum and need to pay a few hundred bucks (or more) to secure that luxury hotel with a beachfront view. If you booked directly with the hotel (the cheapest way to do it) then you will need to transfer money from your USD bank account in Houston, into their Peso bank account in Mexico. The question then is how do you make the payment? How to pay abroad without being ripped off?
As I already said, if you need to transfer money abroad then do yourself a favour, don’t rely on your bank and don’t use paypal. But what should you do instead? Well one option is to find an online money transfer service – the best way to send money to a bank account abroad.
Money Transfer services specialize in moving money internationally. They operate differently from the banks as they have “on the ground” locations all over the world meaning they don’t need to go through the banking system and the money all stays within one organisation. The result is that international payments are a lot faster (taking minutes rather than days) and crucially, are often a lot cheaper. In the scenario set out above, you would essentially pay the money to the providers’ US office, and then their Mexican office would credit the recipient’s account.
There are a lot of different money transfer specialists out there and finding the right one can feel pretty overwhelming. So make it easy on yourself and start your inquiries by visiting moneytransfercomparison.com. Online money transfer providers do charge a fee but they are usually a lot lower than the banks and best of all, they are clear and transparent so you know exactly what you are being charged, and exactly how much the recipient will get.
How to Receive Money From Abroad?
So far we have focused on the quirks of sending money internationally but what if you are on the receiving end? If you are receiving payment from abroad, then there are a few things that could happen.
If you rely on banks, then the aforementioned fees we discussed may be paid as an “extra” by the sender meaning that you will be none the wiser and will get exactly what you were expecting. Alternatively, the fees may be deducted from the transfer monies which means that you will essentially be paying the costs and will receive less than you were expecting. This can often cause problems when the sender and recipient both blame the other one for the discrepancy.
This actually happened to us recently when we sent some money to loan a friend. When she was returning the money to us, she paid the exact amount which she had received from us, which meant that the transaction fee also came from that. We lost of even more because we also had to pay to send the money to her!
Therefore if you are receiving payment you should encourage the sender to use a money transfer specialist and to take full control of the situation you should encourage them to use your chosen provider. This may not always be possible but you should certainly try to make it work.
If you regularly transact in foreign currencies, it may be worth opening a multi-currency account. But what are multi-currency accounts and how do they work?
A multi-currency account allows you to hold your monies in different sub-accounts or ‘pots’ in different currencies. For example, let’s say you open a multi-currency account by depositing $2000 – you could have one pot with $1000, one pot with £500, and a third with €500.
When you open the account and allocate the monies to a certain pot, the monies will be changed into the specified currency there and then. This means that in the future if you need to make a payment in a specified currency, you will not have to deal with or worry about exchange rates as you already have the currency. I find this to be such a cool idea! Multi-Currency accounts are a great way to protect against fluctuations in the forex markets and they offer a degree of certainty and stability making them very popular with businesses’.
Some multi-currency accounts can also save you money on transfer fees depending on which company you open the account with, and where the monies are going. However, in many cases, the recipient’s banks will still be charging a fee to accept the payment.
Multi-Currency accounts are becoming increasingly available through challenger banks like Wise (formerly Transferwise) and Revolut. In order to remain competitive in a tough market, the traditional banks will have to try and offer multi-currency accounts themselves before too long but problematically, they are for the time being slowed down by red tape and regulatory issues. Still, watch this space.
Whether you are sending or reciting, whether the amount is dollars or dimes, and whatever the reason, there are smart ways to move money internationally. I hope you found this post helpful and that it helps you to save a few bucks on your next transaction. Do let us know in the comments section if you have any thoughts or questions on this.