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What’s The Best Way to Transfer Money Internationally – a Bank or a Designated Service?

Best Way to Transfer Money

If you have ever been involved in an international money transfer or in sending money abroad then you are probably aware that it can be costly. Whether you are sending or receiving money from abroad, there are going to be transaction fees to deduct and in instances when there is a currency exchange involved, the conversion rate can also amount to hidden costs.

Expats and businesses that trade globally know too well that the costs of transferring money internationally can soon add up. Whilst at this particular time, a strong dollar does lessen the impact a bit, savvy expats and diligent businesses are nevertheless conscious of just how much they are losing in money transfer fees and are on the lookout for the cheapest way to send money.

In this post, we are going to take a closer look at how money transfers work,  how to work out the cheapest way to transfer money abroad, and how to find the best way to transfer money internationally for you or your business.

Transferring Money Internationally – How It Works

Whenever an individual or business is transferring money internationally, the funds are sent from their home country’s financial services network into the destination country’s financial network. This is usually achieved by using the extensive SWIFT banking system and all entities that have access to SWIFT (banks and a few other financial services companies) tend to charge a transaction fee for this.

Additionally, when an international transfer is made the currency also needs to change from the sender’s currency, into the recipient’s currency. In most cases, the currency exchange is handled by the sender’s appointed financial institution (again, usually a bank) and as such, they get to set and control the exchange rate being used. Whilst they will always use the prevailing open market rate as a guide, all institutions will generally apply a bit of  “markup” in order to make the transfer profitable for them.

Basically, all of this usually means that the sender either has to send more money than they were expecting, or else the recipient will receive less than they were expecting. Some instructions (like the banks) charge high costs for handling transfers, whereas others (money transfer specialists like Wise) offer much more attractive rates and fees.

To further clarify this, we will offer a few real examples in the next few sections.

Are Banks The Worst Way Of Sending Money Abroad?

While banks are the obvious option for many account holders looking to make an international transfer, they are actually amongst the least efficient and most expensive.

Because of their customer monopoly and zealous control of SWIFT, the banks tend to charge high transaction fees and then apply high markups on the currency exchange when sending money abroad.

Let’s illustrate this with an example. Say we are sending $1000 from the US to our acquaintance in the UK.

We Send – $1,000

Bank Fee – $2.50

Bank Sends – $997.50

Exchange Rate – 0.8245

Recipient Gets – £822.43

The bank fee of $2.50 is quite reasonable but the exchange rate used is not great and essentially equates to hidden costs and in real terms, the transaction here has cost the sender nearly $15.

Banks are definitely not the best way to transfer money internationally but they are not always the worst possible method either. PayPal has also become notorious for high fees and bad markups.

We Send – $1,000

Paypal Fee – $2.99

Paypal Sends – $997.01

Exchange Rate – 0.8239

Recipient Gets – £821.43

As you can see, the costs demonstrated here are quite substantial and even higher than those charged by the bank. The transaction will cost over $16 with PayPal.

That said, both the banks and PayPal are still probably just about more cost-effective than branch-based money transfer companies like Moneygram and Western Union, both of whom are universally derided for their scandalous fees and bad mark-up rates.

However, in defense of these companies, they do service and operate in a lot of neglected, developing, and high-risk countries. Indeed, in some cases, they are the only option available. They are both also able to help send money to recipients who do not even have a bank account so whilst they are expensive, they do have something to offer.

Now we have seen the worst, let’s try and find the best international money transfer service.

Is Wise The Cheapest Way To Transfer Money Abroad?

As we mentioned earlier, money transfer specialists are financial services providers who specialize in handling international money transfers!  They are able to attract customers away from the banks by offering either lower fees, better exchange rates, or both. Using a money transfer provider such as Wise is usually the most cost-effective way to execute a money transfer as the example below demonstrates.

Once again, in this example, we are sending $1000 from the US to our acquaintance in the UK.

Using Wise For International Transfers

We Send – $1,000

Bank Fee – $1.60

Wise Fee – $4.90

Wise Send – $993.50

Exchange Rate – 0.8346

Recipient Gets – $829.19

As you can see, with Wise there are 2 separate fees so the total amount of fees amount to $6.50 but they are offering the best foreign exchange rate; indeed the exchange rate they use is pretty much the market rate so the entire transaction is only costing $6.50 in total. That is a fraction of the price of the banks and is the cheapest way to send money by far.

Is Wise The Best International Money Transfer Service For Americans?

Any US citizen or resident who has social security can apply to open a Wise account. As such, using Wise for international transfers seems like a bit of an obvious choice!

However, is best the same as cheap?  Well, not really. The Wise business model is a very streamlined one and the service they provide is highly automated and comes with no frills. One area where Wise has attracted criticism is in their customer support function which can seem non-existent. Being forced to struggle in communication with an offshore contact center can feel very frustrating for customers chasing up missing or delayed payments, or trying to unlock a frozen account.

From this perspective, it may be better to think about a brokerage to handle money transfers as they offer a personal touch and higher levels of support. The margins are higher than companies likewise, but for business accounts holders moving large volumes of money around the world, may represent a better overall option.

In  Summary – The Cheapest Way to Send Money and Getting The Best Foreign Exchange Rate

To recap, the best international money transfer service is not always the same as the cheapest one. Using Wise for international transfers is often the cheapest way to transfer money abroad as they combine the best foreign exchange rate with low fees. However, some customers find the Wise service to be a bit thin and may instead prefer the personal touch that a dedicated current brokerage can offer.

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