It is important to compare your bank with independent money transfer companies when sending money overseas.
Even the smallest difference can amount to a large saving and more money in youir back pocket.
There are two important pricing factors that need to be considered when evaluating a money transfer quote and it is critical that BOTH of these pricing elements are considered together to get a full understanding of what is being charged:
- Quoted Exchange Rate: This is the exchange rate that your bank or money transfer company are quoting you. It is important to ensure that the forex rate you are being quoted is the actual exchange rate that you will receive and not the ‘Interbank Exchange Rate’ or mid-rate which are sometimes used by companies to entice clients to open an account after which they will then deduct a large forex margin from the Interbank Exchange Rate that they have previously quoted
- Fees or Commissions: Banks and Money Service Businesses will quote a flat fee (say USD 10-50) or a percentage based fee (say 3%). These fees and commissions are over and above the ‘Forex Margin’ built into the Quoted Exchange Rate above
There are money transfer businesses and banks who will quote a competitive looking forex rate but then very high fees and commissions, and vice versa.
It is important to evaluate the overall price or quote that you are receiving with BOTH of these pricing factors in mind as even a small fee USD 5 on a low value money transfer of say USD 100 equates to 5% on the ‘Fees and Commissions’ alone.
As an example, if you were sending GBP 500 to Australia and were quoted a flat fee of just GBP 10 then that doesn’t mean that your cost to send money is just GBP 10 (or 2%). You need to also consider the Exchange Rate or Forex Margin you are being quoted versus the Interbank Exchange Rate. If the Forex Margin is 3% below the Interbank Rate then your total Implied Cost is actually 5% (and not 3%).
An extra 2% on GBP 500 may not be material but an extra 2% on a transfer of GBP 10,000 is GBP 200 so it is important to (1) compare your bank and money transfer companies, and (2) take all costs into account!
Below are some further money transfer tips that you may find useful the next time you need to send money overseas.
- Transfer fees can be high so it is more cost-effective to send larger amounts rather than break your transfer up into small amounts.
- Transfer fees may increase or decrease according to the amount being sent. Get clear and transparent pricing from your provider
- On larger amounts always call the company for a quote over the phone where possible as forex dealers will generally compete more aggressively for your business if you give them a call
- Even a small difference in price can make a huge difference to the total amount you receive. A saving of 3% on a GBP 100,000 transfer is GBP 3,000.
- Forex rates move every second of every day and trade 24 hours a day. It is important to keep an eye on the market and any expected economic announcements that may cause the market to move significantly in a short space of time
- Place a target rate and stick to it. This of a target forex rate that you would be happy with and when the market reaches that level commit to it and you will sleep easier and be comfortable with your decision.
- Read the Terms and Conditions of the service provider carefully
- The cheapest way to send money is to pay by Bank Transfer and pay out into a bank account in the destination country. Cash and credit card payments can be very expensive and greatly increase the cost of your money transfer