To find the best way to transfer money internationally, it’s important to understand the fees, exchange rates and speed of different transfer options.
TransferWise is a new type of financial company that allows customers to send money internationally at a fraction of the cost that most banks and providers charge.
But if you’re not careful, you might end up paying more than you should for the convenience of a fast money transfer, which is not always necessary nor the best option for large or regular money transfers. Fees charged for international transfers can be high, which is why it’s worth investigating various providers to make sure you get the best deal when sending money abroad.
This guide should help you choose the best ways to transfer money internationally, by helping you understand the different exchange rates and fees you’d get from different providers. While there is your bank or Paypal, there are alternatives like TransferWise, which might prove cheaper and more convenient.
Find the best international money transfer provider
When you send money abroad, you want to get the mid-market exchange rate, stay away from hidden fees and ensure your money is safe.
The mid-market rate
You may wonder why you need to find the best exchange rate — shouldn’t there be one fixed exchange rate that everyone uses to make international money transfers? In fact, there is, it’s called the mid-market rate and is used by banks to trade money among themselves.
Most banks and providers, however, will give you a higher exchange rate when you exchange holiday money or transfer your money internationally. Essentially, you pay their transaction fee plus an exchange rate fee — but they don’t tell you about that exchange rate fee, which is why it’s called a hidden fee.
It’s important to make sure that the provider you choose fully complies with the regulations of the countries in which they operate. They should also meet the global standards that protect against money laundering, as well as any other international requirements.
What is the best way to transfer money abroad?
The traditional ways to send money internationally — via banks and wire transfers — are increasingly being challenged by specialised foreign exchange companies that offer online international money transfers.
As you navigate the minefield of varying exchange rates and provider fees, it can be difficult to calculate the best way to transfer your money internationally. The most secure way to send money abroad depends on your destination.
Bank money transfers
Most people first think of their bank when sending money abroad. Bank transfers are an easy option for many people, but not always the most cost-effective or convenient method. Bank-to-bank transfers are known for being highly secure, but banks also offer a full range of financial services; they can’t always allocate the same amount of support or online tools as companies that are dedicated only to money transfers.
This can also mean that banks have less competitive exchange rates or higher transfer fees than dedicated foreign exchange brokers, as the latter can offer better deals due to a high volume of transfers. Some retail banks are known to charge more than EUR 30 in fees, and their exchange rates are not transparent, incorporating a 5–7 percent margin on top — yet another hidden fee.
International bank transfers can usually be done online, in a branch, or via phone banking, and completed in a few days.
Euro bank transfers within Europe can qualify for the Single Euro Payments Area (SEPA) agreement, which aims to facilitate banking across European borders by making international transfers the same cost as a local transfer. Be sure to check your bank for its specific details.
Send money via wire transfer or money operators
Many people are familiar with money transfer operators such as MoneyGram or Western Union, which are renowned for sending money quickly to almost anywhere in the world. These international wire transfers are particularly useful when a recipient doesn’t have access to a bank account, is in a remote area, or needs cash fast. One example is in the case of a stolen wallet, where the recipient needs immediate funds.
Money operators can be convenient because you can typically transfer money online, via the phone or in-store in a matter of minutes or hours. However, fees for fast, worldwide delivery can be higher than other options and may increase with the more money you send. Money transfers can cost up to 5 percent or more of the transfer amount. Some wire transfer services offer deals and calculators to show estimated costs, but they don’t necessarily use the mid-market exchange rate.
Send money with online transfer providers
Online money transfer providers, such as PayPal or TransferWise, can bring some advantages. For instance, if both you and your recipient have an account with the same provider, you can usually transfer money instantly online, and take the funds directly from your bank account.
Fees vary between providers. For example, PayPal sets a rate of 3.4 percent and EUR 0.35 on domestic transfers; for international transfers, a cross-border fee that ranges from 0.4 to 1.8 percent, depending on the destination, applies. If you need a fast, easy transfer, it may be worth the price — but it is not the cheapest fee when it comes to larger transactions.
In terms of safety in the UK and Europe, online providers are regulated by the UK’s Financial Conduct Authority (FCA) and licensed as Electronic Money Institutions. This means that they’re subject to European rules designed to protect people who use payment services. In the US, online providers must be licensed for money transmission in the states in which they operate, and must comply with all applicable state and federal laws.
TransferWise allows customers to transfer money internationally at the mid-market rate shown on Google or Reuters, and charges a fee of 0.5 percent of the amount that is converted.
For example, based on current exchange rates, if you wish to transfer EUR 1000 to the United States withWestern Union, you may pay EUR 21.90 (EUR 2.90 transfer fee + EUR 19 exchange rate fee), spending a total of EUR 1021.90. When transferring the same amount of money with TransferWise, on the other hand, you would pay EUR 4.98.
How does TransferWise work?
Over a million people around the world use TransferWise already. They save more than 1.5 million GBP in hidden fees every day. When you make a transfer with them, your money never crosses borders. The transfer is made up entirely of local bank transfers.
For instance, let’s say you want to send Euros, from Germany, to the U.S. You send your money to TransferWise’s local account in Germany, and when that clears, they send dollars from its American account to your recipient in the U.S.
TransferWise lets you pay with a bank transfer, or with your debit or credit card. You can make a transfer on their website, their mobile app, and even on Facebook, through their Facebook bot. In most cases, the money will get to your recipient’s account within 1-4 working days. On some routes, the transfer is nearly instantaneous.
TransferWise also has a business product that makes it easier to pay international invoices and freelancers or collect international payments. It includes a Borderless account which allows businesses to have local accounts and hold multiple currencies. While TransferWise saves customers significant amounts of money on international transfers, it saves businesses even more.
Sending money using a foreign exchange broker
Dedicated foreign exchange (FX or forex) companies are increasingly offering an advanced range of transfer and exchange services to compete with traditional methods of sending money abroad. Some benefits offered by FX brokers include free transfers, online money transfers, better exchange rates, 24-hour support, and access to online tools such as foreign exchange alerts and the ability to set your own desired exchange rate. If you’re planning to send large sums of money abroad (more than EUR 1,000–5,000, for example), using a forex broker can be a convenient option.
You must first deposit the funds you want transferred into the FX broker’s account (usually online, although other options exist such as direct payment from your bank), after which they exchange your money and send it abroad. Although your FX broker might offer a free transfer, your own bank may charge a fee to transfer the money into the FX’s account. This, however, will typically be the cost of a local bank transfer (or free) if you use a broker who has a bank account in the same country, or if it is a euro transfer within the EU and qualifies for the SEPA agreement.
Foreign exchange providers can typically provide better exchange rates and lower fees than banks because of the high volume of transactions they conduct. Most online FX brokers have calculators on their websites that show you the total estimated costs, exchange rate, and exact amount you will receive after the transfer, typically offering more transparency than other transfer options.
Another benefit is that you can often find better support services because FX brokers are specialist firms focused on foreign exchange, such as currency advice and-real time exchange rates.
For regular payments — for example, if you pay a mortgage abroad, transfer a salary or pay international school fees — foreign brokers may offer benefits on transfer fees or let you lock in an exchange rate to regulate the amount you pay in a foreign currency. For one-time payments, locking in exchange rates can also be useful if you need to make a large transfer at an upcoming given date (for example, making a down payment on a house) and the market is unstable.
If your money transfer doesn’t need to be rushed, you can also create a ‘limit order’ or set a desired exchange rate to target. This essentially lets you nominate your ideal exchange rate, and you will be contacted when the currency hits that rate.
Foreign currency tools to help with money transfers
Currency brokers typically offer additional exchange tools and services that most banks don’t offer, which can help you get a better deal when transferring money. Using such services also allows you to protect your transfers from currency risk and stabilise your regular payments.
Setting a long-term exchange rate
In most cases, when you transfer money abroad, you are undertaking a ‘spot trade’, where your funds are transferred at the current market rate. However, if you are transferring large or regular sums, e.g. buying a property or paying a foreign mortgage, a ‘forward contract’ can create payment stability. This involves locking in the current market rate for up to two years, meaning you know exactly how much money you need to cover the required amount of foreign currency, regardless of the market situation.
Setting minimum and maximum exchange rates
Other useful tools include ‘stop loss orders’ and ‘limit orders’, which are set minimum and maximum rates at which you are willing to trade or send your money, respectively. This means you can wait for better exchange rates while at the same time ensuring your funds will be transferred at the rate set by your ‘stop loss order’ should the market unexpectedly fall, protecting you from further losses.
Why do companies offer such different exchange rates?
All foreign exchange providers buy their currency from the private interbank market. They then add a margin on top of this when they sell it, in exactly the same way retailers do with physical products. Companies offer different exchange rates because they use different profit margins.
How exchange rates affect international money transfers
Exchange rates can greatly affect how much money you receive at the other end, and can have a particularly notable impact on larger transfers. The foreign exchange market is incredibly volatile, so knowing how to protect yourself from risk is key.
Exchange rates can fluctuate on a second-by-second basis. Political, economic, social and environmental developments can all affect the value of a currency. A sudden rise or fall in an exchange rate from an election outcome, for example, could make a significant difference to the total funds you receive from one day to another.
For this reason, timing does make a difference to your transfer and there are many online tools and alerts to help you get the best exchange rate; you can also lock in an exchange rate.
Exchange rates, however, aren’t the only fact to consider. The fees to transfer your money vary greatly between providers — whether free, a set fee or a percentage of your transfer — so an attractive exchange rate does not necessarily mean you will get more money. For example, a forex provider might charge a zero-transfer fee but the exchange rate might be lower, while others might promote highly favourable exchange rates but charge higher transfer fees on top.
Tips to consider before you transfer money abroad
There’s a lot to think about when transferring funds abroad, but determining how to send money abroad is easier when considering the pros and cons of each service.
- Know what factors will affect your money transfers so you can better protect yourself from risk.
- Choose your provider carefully. Don’t just look at their rates, but also at their levels of service and support in case something goes wrong.
- Decide on the best time for your transfer. Do you have time to wait for a better exchange rate, or do you need to exchange your funds immediately?
- Look online for the mid-market rate, also known as inter-bank rate. This is the real exchange rate that banks use to transfer money between themselves. You can find it on Google Finance, Reuters, and XE, among other sites.
- Be aware of hidden fees, which banks and most providers add on top of the exchange rate — and often don’t communicate to customers.
When you need to decide the best way to transfer money abroad, a little research and planning can go a long way. Each money transfer option has benefits and downsides, so you need to weigh them according to what you need, whether it’s speed or a low fee, as well as how much money you need to transfer and where it must be sent. Pick the right provider for your needs and you can enjoy simple, fast and cost-effective international money transfers.