How to save up on international money transfers
These days, we are leading increasingly international lives. We’re not just going on holiday to Majorca – our kids are going to school in Canada. We’re buying property in the Alps. And, as Brexit looms above our heads like a sword, we’re hedging our savings in offshore accounts.
However, if you’ve never moved your hard-earned cash abroad before, you may be in for a shock. Do it through your bank, and you’ll be left wondering where half your quid went. International money transfer is big business these days – and too many people are getting gouged by opportunistic firms.
How can you get the best deal possible when moving your Pounds overseas? We’ll walk you through the process, step-by-step, in today’s blog.
Barclays and their friends are bilking you
Let’s get one thing clear straight away – your bank is not your friend. At best, they are a business partner. And concerning international money transfer, the deal they offer customers is a truly terrible one.
Let’s say your daughter is going to uni at McGill in Canada and needs 500 CAD for books. So, you go down to your local Barclay’s branch. The teller gives you a GBP/CAD rate of 1.6547. At that price, you’ll need to send 302 GBP, plus 20 GBP for the wire fee. You shrug off the latter charge – all the cost of doing business, you think.
Before we expose why this transfer is irredeemably bad, here’s the first thing you need to know. The exchange rate the banks give is NOT the real rate of exchange. To make money on international cash transfer, they charge a rate different from the interbank rate.
What’s the interbank rate? It’s the wholesale rate of exchange that banks and brokerages use to trade with each other. Rather than give you the same sweet deal, they offer you a different rate. They call the difference between that price and interbank their “margin.”
Take a look at the current interbank rate for GBP/CAD. At the time we wrote this blog, it was 1.7124. That’s a difference of more than 4%, which is shocking for such a significant pairing. If you could move money to your daughter, free and clear of any fees or margins, you’d only have to send 292 GBP.
Combined with the wire fee, you’d spend 30 GBP MORE using Barclay’s, Halifax, Lloyd’s, or any other retail bank.
The more you send, the more your losses compound. What if you had to send 20,000 EUR to close on a holiday home in the French Alps? Lloyd’s offers a GBP/EUR rate of 1.1256 – together with a wire fee of 30 GBP, you send 17,798 GBP. However, the interbank rate for GBP/EUR, at the time of publication, was 1.1643. Theoretically, you could have only sent 17,177 GBP.
In effect, you’re paying Lloyd’s 600 quid for the privilege of sending your money to The Continent. Aren’t you so fortunate!
Fear not – there are numerous alternatives to the financial establishment
We already know what you’re going to say next. “But only the banks can use the interbank rate, so what’s the use in complaining?” you exclaim to your screen.
Ten years ago, you would have been right. Apart from pioneer firms (e.g., Global Reach) that served businesses, everyday people had two alternatives – Western Union or Moneygram. These firms, who had full knowledge of the horrible rates offered by financial institutions, had every chance to compete with them.
Instead, they chose to collect fat profits by charging the same bad prices. In some markets, like cash pickup remittances, they offered WORSE rates than the banks.
That all began to change in 2010. Tired of getting screwed by traditional financial institutions, two Estonian friends with tech experience started Transferwise. In return for a nominal (e.g., 0.5%) fee on transfers, they offered consumers the interbank rate.
Money senders ate it up. Part of an increasingly international populace that tired of the bank’s antics, they embraced rates that saved them THOUSANDS of POUNDS annually. Today, only money transfer behemoth Western Union moves more money yearly than Transferwise.
The success of this money transfer firm has inspired countless competitors to enter the market. When you search online for non-bank money transfer firms in 2019, you’ll find a variety of options.
Companies like Currencies Direct, WorldRemit, Xoom, XE, CurrencyFair, and others vie for your business daily. As such, there’s never been a better time to lead a worldly life than now.
London is a hub for international money transfer firms
Despite the turmoil surrounding Brexit negotiations, London continues to serve as a headquarters for many money transfer firms. Whilst Transferwise decided to move to Europe, Moneycorp, Global Reach, WorldRemit, and others continue to make their home here.
Why haven’t they stampeded out of the UK? Despite ongoing instability, finance remains one of London’s top industries. Its core fundamentals remain in place, as they were born out of the realities of doing business with a multinational continent.
Besides, there isn’t a clear alternative in Europe. Some have moved to places like Frankfurt and Zurich. However, neither have the mass concentration of talent, capital, and existing businesses like London has.
It’s true – some contraction is unavoidable post-Brexit. However, for the reasons we’ve stated, London will continue to be a significant financial hub for the foreseeable future.
Which money transfer firm should I choose?
So, you’re asking yourself, “If I shouldn’t use my bank, where should I take my business?” As we’ve shown you, there are many alternatives out there on the internet. But, don’t just go with ANY firm – pick the one that fits your budget and your needs.
Start by finding a resource like MoneyTransferComparison.com. Review sites like this one break down what each service has to offer. From their scope of service to client reviews, they cover major players from a variety of angles.
Whilst perusing their listings, keep in mind why you need to transfer cash. If you’re sending money to family members in Africa, Latin America, or Asia, WorldRemit may be best. With cash pickup transfers that frequently beat Western Union, they are an option worth exploring.
Want close to the best rate on the market, but don’t have time to hunt for quotes? Transferwise is always a good bet. They are famous for their transparency, as they aren’t shy about comparing their rate to those offered by the competition. Occasionally, their competitors do have a better price. Despite this, Transferwise’s easy-to-use platform may still make them preferable.
If you want a well-rounded firm with experience serving consumers and businesses, go with Moneycorp. Moneycorp are the industry’s veterans, as they’ve been in business since 1979. With a minimum transfer of 50 GBP, they’re accessible to ordinary Britons.
They also have no upper limit for transactions. As such, Moneycorp is also a favourite of SMEs that make regular transfers to vendors, suppliers, and remote employees.
Get the best deal possible on international money transfer
A decade ago, you had no choice but to sack up and pay the bank’s rate. Today, the marketplace is bursting with dozens of options. It’s not hard to do better than the banks, so get out there and find a better deal!