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Does Exchange Rate Matter When Sending Money Abroad?

January 16, 2015

Transferring Money Abroad? Does the Exchange Rate Really Matter?

If you are sending money to another country, let’s start with the obvious: you want as much of your money as possible to arrive at its destination.

Most people are used to banks and other companies charging a ‘sending fee’ or some other such up-front charge for the transaction. The cost of this up-front can range but £25 or $60 are examples we hear of quite regularly.

So, if you are sending pounds sterling from the UK, you could be down by £25 before your money even leaves your UK bank branch (or the equivalent in your local currency).

You could be down by £25 before your money even leaves your bank branch.

But here’s the kicker . . . the up-front fee is just the opening act.

Exchange Rate Commission Is Where You Lose Your Money

When a bank or money transfer company (including PayPal) sends your money to another country, they never give you a 0% exchange rate (or, the ‘interbank’ rate as it’s known). In fact, they give you an exchange rate that strays a long way from the interbank rate.

The interbank rate is the exchange rate at which banks swap currencies with one another or, as Wikipedia puts it: “the top-level foreign exchange market where banks exchange different currencies.

As we explained in our article on how to beat the interbank rate: “Unless you’re a Wall Street big shot, or indeed a major bank, the interbank rate is not available to you – the rate you’ll receive when doing a cross-currency transfer will never be as good as what’s on offer to the banks themselves.”

Most banks and money transfer services stray away from the interbank rate by 3% to 5%, sometimes even more. That means, for every hundred you send (in dollars, Euro, or whatever currency), they strip out 3 to 5 for themselves, every time.

Obviously, the more money you send, the more money they strip out.

An Example of Hidden Exchange Rate Commission

Let’s take a look at the typical way that banks and money transfer companies hide the true cost of using their service.

In this real life example taken from a randon money transfer company which, to be nice to them, we’ll call ‘XYZ COMPANY’.

The fine print on their exchange calculator says: “The rates on the converter are European Central Bank rates click here for more information.”

Currency Exchange Calculator

“Currency Converter Rates
‘The currency converter rates displayed throughout the XYZ COMPANY website and on third party websites are derived from the European Central Bank. These are indicative of the market rates at which banks and currency brokers are able to buy and sell currency to one another but are, however, unavailable to the general public.
The displayed XYZ COMPANY currency converter rates should be used for indicative purposes only. While we trust these exchange rates to be accurate, they are sourced from a third party provider and we cannot be held responsible for any losses arising from their use if inaccurate.
For an accurate quote, and more information on how we can assist you with your currency requirements, open an account or feel free to get in touch.”

On their Interbank Rates page, XYZ COMPANY’s website says something similar:

“Rates shown in the XYZ COMPANY Marketwatch News & Data Hub and throughout the XYZ COMPANY website are slightly delayed Interbank rates. These are the rates at which banks and brokers buy and sell currency to one another on the wholesale market but are unavailable to the general public. These exchange rates should be used for indicative purpose only; while we trust these rates to be accurate, they are sourced from a third party provider and XYZ COMPANY cannot be held responsible for their accuracy, or any losses arising from their use if inaccurate.”

A Question of Exchange Rate Accuracy

Here’s a quick question for you: if you are trying to send money from one country to another without losing much by way of fees and charges, would you like accurate information on the costs and how much you’ll get?

Of course.

Well, here’s how XYZ COMPANY finishes their helpful live currency exchange information: “For an accurate quote, and more information on how we can assist you with your currency requirements, open an account or feel free to get in touch.”

Remember: CurrencyFair Rates are Live

To close, please remember this: when you use the currency exchange calculator on the CurrencyFair home page, all exchange rates and fees are live and up to date. what you see is what you get.

With CurrencyFair, you can get up a 90% saving on the cost of doing international money transfers.

If you’re curious about how exchange rates affect entire countries, check out our article on the Swiss Franc shock.

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