The best way to transfer money internationally

If you’ve ever had to send money overseas, you may have noticed that it’s nearly impossible to get the same exchange rate you see on Google. Sure, you trust your bank and there are plenty of services that advertise low fees, but look closely at most international transfer providers.

The fees for sending money overseas

Whether you’re looking at a bank, or a traditional provider like Western Union, you’ll see an upfront fee. Different providers have different ways of calculating this fee, but it will either be a flat fee, a percentage of the amount you need to send, or both.

Bear in mind that the upfront fee is just one half of the equation — and a minor half at that. Because there’s a potentially bigger fee lying in the exchange rate.

The best exchange rates

You may be thinking: The exchange rate is the exchange rate. You google it, and there it is. But that’s just not so.

There’s no international body that sets exchange rates. Banks and other providers set their own rates when you transfer money overseas with them. And while they’re usually happy to advertise a low fee, they’re less forthcoming when it comes to their exchange rate, since they often hide a markup in it. They do it to cover their own costs, to make extra money off customers, or both.

But while there’s no “official” exchange rate out there, there is a rate that the banks customarily give each other. It’s called the mid-market rate, and it’s the average of the prices that buyers are willing to pay for a currency and the prices sellers are willing to sell it for. When you google a given exchange rate, or look it up in places like Reuters or Bloomberg, the rate you’re shown is the mid-market rate.

When you’re sending money overseas from Australia, be sure to look up the mid-market rate, to get a good idea of what your rate should be. A service like TransferWise will always give you the mid-market rate, but banks and traditional providers might add a markup that makes your transfer more expensive than it should be.

When you need to send money overseas, you have three main options. They each have pros and cons.

Banks:

Pros: Convenient, secure

More than anything else, your bank is a convenient option. Any provider will need to verify your identity before you send money overseas with them, but since you already have an account with your bank, you can probably skip this step.

Con: Expensive

There are exceptions, but most banks won’t give you the mid-market exchange rate, even if you’re a longtime customer. For some banks, this is simply a way to make extra money. For other banks, it’s a matter of cost; international money transfers are an expensive side business for them, and they cover their expenses by marking up the rate.

Cash transfer providers:

Pro: Convenient

These traditional providers, like Western Union, can also be very convenient; you can simply walk in. They’re also good if your recipient doesn’t have a bank account.

Con: Very expensive

With virtually no exceptions, cash offices will charge you a lot to make a transfer — whether that’s in the form of an upfront fee, exchange rate markup, or both.

Online money transfer companies: Pro: Cheap

Start-ups have made it cheaper to do almost anything, and transferring money overseas is no exception. A quick Google search will reveal numerous fintechs, like TransferWise, that offer international money transfers for less than banks and traditional wire transfer services.

Con: Service varies

While many online transfer providers will give you a better deal than your bank, their own rates and fees can vary. The same goes for their transfer speed, and the quality of their customer service.

Cheapest way to send money overseas

TransferWise is one of the fastest-growing online money transfer companies in the world. It was founded in 2011 by two friends who needed to send money home a lot, and were tired of getting ripped off by their banks.

“We couldn’t believe how much the banks marked up the rate without telling you,” says Kristo Käärmann, TransferWise’s CEO and co-founder. “We wanted to bring fairness and transparency to international transfers.”

If cost is your first concern, you may look at TransferWise as the best way to transfer money overseas from Australia, since it always give you the mid-market exchange rate. Between TransferWise’s rate, and low, upfront fee, it can be up to eight times cheaper than a bank.

For example, sending 1,000 Australian dollars to the United Kingdom with TransferWise costs less than $6 if you pay by bank transfer. And at the time this article was written, under TransferWise’s exchange rate, one Austrian dollar equaled 0.55 British pounds. So your recipient would get 545 pounds.

But if you used another popular provider, you might have gotten 0.53 pounds for every Australian dollar. Your recipient would end up with 523 pounds — a full 22 pounds less than with TransferWise. Fintechs like TransferWise can afford to offer better exchange rates and lower fees than banks for two general reasons.

Lower overheads and costs

Banks have branches and office buildings, and offer a wide range of financial products. So when you make an international money transfer with a bank, there’s a good chance that the fees they charge you are also helping to pay for these other parts of their business.

On the other hand, fintechs like TransferWise do business purely online, and they focus on a limited number of services. So they can afford to charge you only for what you use.

New technology

To a large degree, banks have been doing international money transfers the same way for decades. Many of them don’t use new technology to make their transfers more efficient. One example: When you send money from one country to another through a bank, your transfer might pass through several intermediary banks along the way. Each of these middlemen receive a fee, which drives up the price for you.

Fintechs have built new “pipes” to make international transfers. When you send money through TransferWise, for instance, it passes through fewer middlemen — which lets TransferWise charge you less. This technology also makes their transfers faster than the banks’.

Thanks to these innovations, TransferWise has gained over 5 million customers in the eight years since it was founded. They send over A$5 billion every month, and save over A$5 million in bank fees every day.

So, how do you do it?

The first step in sending money overseas is to pick a provider. Different people will have different priorities, but no matter what your specific needs are, these basic questions should help you narrow down your list:

Choose your currency and enter the amount you’d like to send

TransferWise will tell you exactly how much you’ll pay on the very first screen. It will also give you an estimate of how long the transfer will take.

Create an account

It’s free to create a TransferWise account, and usually takes moments to set up. Your recipient doesn’t need a TransferWise account — only a bank account.

Set up the transfer

Confirm the currencies and amount you want to send. Then enter your recipient’s bank details. (On TransferWise, you only need their email address, but entering their bank details will speed things up. See below for more about different countries’ bank details.)

Pay for the transfer

Send the money through your online banking, or with a debit or credit card.

TransferWise sends the money to your recipient’s bank account.

Your recipient will receive the money in their own bank account. They won’t have to pay anything.

Bank details

To send money internationally, you need your recipient’s bank details. Different countries have different formats, but this table shows the basic details you need for the most popular recipient countries for people sending money overseas from Australia.

How long does it take?The speed of a transfer depends on the currencies and countries you’re sending between. But it also depends on how you pay. If you pay with a credit card, your money will get there faster, but the transfer will cost a bit more. If you pay by debit card, your transfer will be a bit slower, but also a bit cheaper.

It takes most providers about 3-7 days to complete an overseas transfer, but fintechs like TransferWise can usually complete transfers to popular countries within a day. TransferWise’s transfer calculator will give you a delivery estimate as soon as you enter your amounts and currencies.

How safe is the money?Again, a quick search should reveal how established and safe a provider is. Some people might be hesitant to send money with a non-bank, but fintechs like TransferWise are regulated for the services they provide, so this shouldn’t be a big concern.

In Australia, TransferWise is regulated by the Australian Securities and Investments Commission (ASIC), and registered with the Financial Intelligence Unit (AUSTRAC) as a money remitter.

When in doubt, see how many customers a service has. If it’s been around a while and has millions of customers, that’s a good sign that you’re in safe hands.

Before you send money overseas from Australia, make sure to shop around so you don’t overpay. Look closely at exchange rates and fees, and most importantly, how much money will reach your recipient.

TransferWise even has a handy comparison tool that shows you the cheapest providers for a given transfer, even if it’s not them. That might be the simplest place to start.

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