How to save money upon international transfers

 

Photo credit : https://www.flickr.com/photos/epsos/

By: Matt Di Vincere

The foreign exchange market is the largest market (in terms of volumes) in the world (reference). While this could appear as a random fact to many of you, it is most certainly not. If you’re living in a western country, overseas travel is fairly common, and there’s a fair chance you’ll partake in one of the following activities:

– Study in a foreign country.
–  Buy an asset of any size in a foreign country.
– Work in a foreign country and send remittance home.
– Retire abroad.
– Pay for goods (personal or import).
– Send a personal payment to a friend or a relative abroad.

You will undoubtedly pay between hundreds, to hundreds of thousands of dollars in commissions. If you wish to improve your personal finance habits, the international money transfer market (commonly known as FX – foreign exchange) is a good place to start.

Don’t these numbers seem excessive?

I am certain there are people reading this and shaking their heads in disbelief. Average Joe doesn’t exchange currency in Millions, doesn’t he?

… Let’s imagine Joe living a perfectly normal life in America. He travelled to Europe every few years, bought some goodies from international websites that deal in Euro from time to time, had a 40′s anniversary trip to China along with his wife, and now when he retired, he is looking to invest a part of his savings in form of buying an apartment abroad (he heard a nice condo in the lovely city of Barcelona costs 70,000 Euros / ~81,000 USD).

Before even considering his recent venture, we can assume Joe exchanged in excess of $30,000 for various currencies (mainly the Euro). That alone could amount to a hefty commission of $X,XXX. With an overseas investment, we could be talking $XX,XXX in commissions.

How much commission do banks actually charge you?

The only thing that can be said for certain is that banks charge too much. There’s a variety of fees to be paid with each FX related action. Whether you exchange cash in the bank, send money to a bank account, pay your bills or withdraw foreign currency in an ATM, there are fees aplenty.

These fees could cost much as 25 USD / 20 GBP per transfer, including small personal transfers. Beyond this ridiculous amount of flat fee, the exchange rate you are offered could be as terrible as 10% worse than the “official” (interbank) rate. That means that on top of charging that upfront payment which could be as meaningful as 10% of the transfer size, they would sell you currency for 10% in addition to the price they bought it for.

These numbers are probably the top mark when it comes to unjust commissions, but be rest assured all major banks take a chunky piece of the pie (YOUR PIE).

What is the alternative?

Before I present the alternative I should give a proper disclosure about working for a website comparing alternatives to the traditional way of transferring money abroad i.e. bank wire transfer (estimated 90% or more of FX exchanges worldwide), and exchange bureau. The website is MoneyTransferComparison.com, and the topic it deals with, is the world of foreign exchange companies.

In short, what these companies do is accept a bank transfer from you, in your local currency, and make the currency exchange at a preferable rate, and then transfer the money to another bank account internationally. Some of them also deal with “travel money” exchanges, which allow you to redeem that money in cash in multiple locations.

If that’s so simple, how come I haven’t heard about it?

You have probably have heard of the “big dog” in the world of foreign exchange transfers, being Western Union, a company with revenues of 5.5B USD per annum, and over 7,000 employees worldwide.

The thing about Western Union is this – they do beat the bank’s quote usually, but they still charge pretty stiff fees. In addition to that, they have terrible reviews all over the internet.  Literally thousands of people had such horrific experiences dealing with them, to the point where they bothered themselves to write about their case, and make it public.

The most credible sites on the internet tell the story – see Consumer Affairs, Review Centre (UK), and Product Review (AU).

So, if Western Union is not the preferable alternative, what is the right choice when it comes to saving money on currency exchanges?

Good and bad money exchange companies

Before we delve into the details of which company to use, it is important to define what we are looking for in a commercial non-bank money transfer company.

Our core values, at moneytransfercomparison, are as following:

-          Security first:

The commercial FX market is already an established market. There is a regulation in place, in the US, the UK and Australia (as well as most of the world) to make sure each transfer is secured.

Our personal favorite regulator is the British Financial Conduct Authority which is extremely active. The Brits have a unique currency which is not acceptable in nearing countries, and thus it poses the most advanced regulation in the topic.

Check for an approval of the company with the FCA or local counterparts.

-          Reliability first as well:

When you exchange currencies you are looking for a reliable company that you know has good reputation for delivering what it promises. You are already out of your comfort zone, transferring potentially large amount of funds to a “third party” to conduct the FX activity for you.

What you need in order to ease your mind is to find a company which has a large amount of reviews online (with a positive notion to them of course). You want companies that have been around in the business for years, have always delivered, and show a transparent approach about fees and exchange rates.

-          Fees and exchange rates:

The industry standard dictates less than $10 for small personal transfers (under $250, or $500, depending on the company). Some companies don’t charge at all on smaller transfers.

The exchange rate must be much better than the banks, in varying levels. It heavily depends on the currency pair and the quote the bank gave you, but it could be a difference of several percentages of the overall transfer amount.

-          Speed and ease of transfer:

You want to do it online, or via the telephone, or even through an app. You want to the transfer to take 24 hours from the moment it arrived the foreign exchange company.

You want the platform to be welcoming and newcomer-friendly, not sophisticated to use, but can still be attractive for people interested in hedging the amount with various tools.

-          Global presence: 

You want to be able to exchange your local currency to tens or even hundreds of local currencies. You want to have hedging opportunities for each currency pair. You want the company to have local presence in the important parts of the globe. You want the support team to be able to assist you in your native tongue.

 More on the local aspect could be found in local money transfer websites, like this one about transferring money to Australia.

Are there any companies matching the above criteria available in my region?

Our top choice over at Money Transfer Comparison is World First currency transfer. They are friendly, quick, easy to register with, trade in large volumes and FCA regulated of course (as well as authorized by FinCEN in the US).  In the US they charge a flat fee of $10 for transfers lower than $10,000, and offer very competitive quotes.  Minimal transfer size is $500 or equivalent in local currency.

It’s easy to deal with them, you can always request a call back and they’ll be quick to respond, and they offer an amazing app which makes the process even easier (currently released for UK, but will be released to US audience soon).

Unlike their peers, they have been widely praised by their clients.

More alternatives:

We have reviewed 20 companies which has been carefully selected to begin with (with proper licensing, dealing with large enough volumes, and have been around for at least several years).

There are a few we particularly liked:

-          Currencies Direct is the newcomer’s dream. The interface is easy to understand, even when tested with a more senior audience, there are video tutorials guiding you through the process, and their dedicated dealers are friendly and helpful.

-          MoneyCorp is one of the industry’s giants, a publically traded company with turnover in 2013 of over 11,000,000,000 GBP. It provides a full service like Western Union does, but only much better than them.  It charges very small fees on small transfers and no fees over $250. A great company with great reviews all across the net, that also offers cash pickups in many locations worldwide.

-          Currency Solutions is a business specialized company which gives the full array of tools to business, and has the tightest margins (min. transfer 10,000 GBP or equivalent).

-          Axia FX is the smallest of the bunch, but they offer great rates, and unparallel reputation.

So, if I choose a company, what do I get?

To summarize, when you use the bank, you are not saving money on international transfers. It’s quite the opposite; actually, you pay a lot more than you should.

Upon choosing valid, reliable, carefully researched, FX Company, you get:

-          Smaller or no fees at all on your transfer.

-          An option to exchange vacation money for better rates.

-          Quicker transactions than what the bank offers you.

-          A lifetime saving of hundreds, thousands, tens of thousands, or more dollars.

Feel free to visit us to expand your knowledge of the topic.