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.”