Commission Free Currency Exchange CompaniesOctober 27, 2014
If you are busy doing research into commission free currency exchange companies then you are probably preparing to send money abroad.
This article will help you prepare for the international money transfer and save you a lot of money in the process.
What Fees Are Involved In International Money Transfers?
Companies that offer international money transfers are not charities – they all have bills to pay and profits to make. Here are some of the many different ways that money transfer companies take their cut when you send money to another country:
- A sender’s fee
- A recipient’s fee
- A surcharge
- A transaction fee
- A transfer fee
- Cash advance fees
- Bulking up the exchange rate
Clear, upfront fees like a sender’s fee or a transfer fee are fairly straightforward. You may not like how big the fee is but at least you can understand it and see how it works (to see CurrencyFair’s tiny transfer fee, click here: how small is CurrencyFair’s transfer fee?).
The Hidden Fee: ‘Commission Free’ Currency Exchange
When you look at the list above showing the many different ways that money transfer companies make their money, you might have noticed the number one trap employed by commission free currency exchange companies around the world: bulking up the exchange rate.
What? Bulking up the exchange rate? Sounds a little dull right? Well, it could cost you a lot of money.
Here’s what the popular UK sponsored finance website Money.co.uk said about currency free exchange:
When many people undertake … exchange rates comparison they deliberately research the companies that offer a commission free currency exchange. The assumption is often that companies who don’t charge commission offer a better deal than other travel money providers. However, this is not always the case. This is because the exchange rate on commission free currency may be significantly worse than it is with other providers. So while you may not pay any commission, you may get significantly fewer euros or dollars for your sterling. In addition, a no commission currency exchange could also work out more expensive if there are other fees that apply.
Let’s put it another way . . .
When you are travelling and need to exchange money at an airport – what do you usually see above the currency exchange stand? Yes, the “Commission Free” or “0% Commission” sign. However, we all know that airports are horribly expensive places. A simple cup of coffee often costs twice as it does at your local cafe. So how can an airport currency exchange shop (paying high rent, staff costs, etc) afford to offer you no commission on your exchange? It’s simple: they hit you with an expensive exchange rate.
How can an airport currency exchange shop afford to offer you 0% commission on your exchange? It’s simple: they hit you with an expensive exchange rate.
It’s not just airport stands that are hiding their charges in the exchange rate though. There are many companies which claim to offer ‘free currency transfer’ – banks and post offices are particularly notorious for this.
As we pointed out in this article, commissions and other charges are easily disguised and rolled into the actual rate you pay, with you none the wiser.
If you see a company that claims to have no commission attached, chances are that very same company is hiding the fee inside a horribly wide exchange rate to cover the costs of claiming to be ‘commission-free.’ Because it is sometimes difficult to really know what the correct exchange rate of the moment is (and because people don’t realise just how wide the ‘spread’ can be for exchange rates), these companies are easily getting away with this unfair behaviour.
It’s not just us saying it. The highly regarded consumer watchdog group, Choice, warned their readers about the dangers of the exchange rate:
There’s no way to know how much might go missing in the course of an international money transfer. Unexpected fees and a laughably bad exchange rate could cost you hundreds of dollars along the way – especially if banks are involved.
In a recent article (Why Is CurrencyFair So Cheap? What’s The Catch?) we explained how the exchange rate margin works. All currency exchange is based off the interbank rate which is essentially the rate at which the big banks exchange currencies with one another. The further your currency exchange company strays from the interbank rate, the more expensive it is to you. Or, to put it another way, the wider the spread in the exchange rate to buy or sell another currency, the less money for you at the end.
The further your currency exchange company strays from the interbank rate, the more expensive it is to you.
Since most individuals are not familiar enough with exchange rates and how they work, banks and other companies get away with it time after time.
So, what to do?
How To Avoid the ‘Commission Free’ Scam
So now you know that one of the biggest tricks when it comes to sending or exchanging money overseas is the ‘zero percent commission’ rip-off.
The zero percent rip-off is where a bank or money transfer service drags you in with promises of no commission or no fees.
If you really want to avoid the zero percent commission rip-offs, here’s how to do it: compare prices of money transfer companies.
See how CurrencyFair compares to other money transfer companies
There are many services for sending money abroad and many will claim to offer ‘zero commission’ or ‘commission free’ money transfer services:
- Walk-in service currency shops
- Online money transfer firms
- Convenience stores
- Retail stores
- Traditional currency brokers
It is important to do your research (this research tool helps) to see which service suits your needs best and which is the most cost effective.
And while you’re busy doing your research, you might also like to check up on the company’s level of customer service. As with any business you use, make certain that there is a customer service team that is willing and able to help you with your questions. You may even want to phone them prior to signing up for any particular money transfer service. See how patient or impatient the customer service team is in answering your questions.
Just as you would shop around for the best price and after sales support for a new car, you can shop around and do the work to find the best value for sending money abroad.
Video Comparing Currency Exchange Companies
We’ll leave you with a quick look at the main ways to send money overseas.
Best of luck in your research.
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