Why sending £1,000 abroad can cost £5 or £50

An international money transfer is probably the simplest and safest way to send funds to someone in another country. But it can seem daunting, especially if it’s not something you do regularly.

There’s much to consider such as:

  • Selecting a trustworthy provider,
  • Securing the most favourable exchange rate,
  • Understanding the various associated – and sometimes hidden – costs.

Plus, other factors like the currencies involved, the destination country, and how urgently the transfer is required. The general rule of thumb is that the faster the funds clear, the greater the associated costs.

Let’s take the case of Michael Smith. He recently transferred £1,000 from his UK bank account to his daughter, who is studying in the States. Unfortunately, being a dutiful dad cost him a whopping £50 in transfer fees. Compare Michael’s situation with that of Sharon Hall. Sharon sent £1,000 from her UK bank account to her son, who is working as a camp councillor in the States. The difference is, she only paid £5 in transfer fees.

So, how can knowing this help you avoid paying excessive fees and make smarter decisions when it comes to your money transfers?Before we tackle this question, let’s go back to basics, starting with the mechanics of international money transfers.

The mechanics of money transfers

Say, like Michael or Sharon, you want to send funds to someone in a foreign country, you might be wondering about the steps involved. So, here follows a basic breakdown of the money transfer process.

Provide your details

You give your local bank or chosen independent transfer provider the recipient’s account details and designate the amount to be transferred.

Currency exchange

Your provider exchanges the designated amount into the desired currency.

Receive funds

Once the exchange clears, the funds are forwarded to your recipient.

There are several ways an exchange can be executed: in person, over the phone, via a mobile app, or online. The method all depends on the provider.

The transferred funds can be deposited directly into the recipient’s bank account, or made available as cash at a convenient location or via a mobile wallet app. Again, the delivery timeline varies from provider to provider.

On average, it takes one to two days for a transfer to clear into the recipient’s account, while some providers guarantee transfers that will clear in hours. However, as mentioned previously, you typically pay a premium for expedited exchanges, up to 10% in some instances.

What you see is not always what you get

There is another critical factor to consider when making a money transfer. You guessed it, the exchange rate which determines how much one country’s currency is worth in another currency. It also impacts how much money your recipient will get.

The foreign exchange market is also notoriously volatile. So, when it comes to securing the optimal exchange rate for your international money transfer, timing is everything.

One way to achieve this is to ensure your provider is trading at the current mid-market rate, also called the median rate.  The mid-market rate is the midpoint between the bid (demand) and the ask (supply) prices for a currency on the global market.

So why was Michael’s transfer so expensive compared with Sharon’s?

As with most things financial, the devil is in the details. And it’s in the finer details where the difference can add up, leaving you paying more than necessary for a money transfer.

Transaction fees

Think of the costs associated with your money transfer as an iceberg. The visible section is the upfront transaction – or service fee that most providers charge to transfer funds. Transaction fees can vary widely depending on the provider and the currencies you’re exchanging. They generally take the form of a flat fee per transaction (ranging from £5 up to £40 per transaction). Or are charged as a percentage of your total transfer amount (from 1% to 5%, possibly more depending on the amount you’re looking to transfer). Bear in mind that a lower fee doesn’t necessarily translate to more significant savings as it might be negated by a weak exchange rate. The same applies to providers who offer a free or zero-transfer fee.

Hidden fees

Then there are the costs that you can’t see because they lie below the surface like the mark-up that your provider covertly levies on the advertised exchange rate. Hence the term hidden fee or exchange rate fee. This point brings us back to the mid-market rate. You may notice that you seldom get this rate when it comes time to make your transfer. That’s because your provider is dealing with a FOREX merchant in the destination country. They sell you the desired foreign currency. They then use your payment to purchase the selected foreign currency from the receiving provider, happily pocketing the difference. Manipulating the published exchange rate for profit is a common practice among banks and some independent transfer providers. And they aren’t usually upfront about the mark-up added. So, if your provider offers you a “higher than mid-market” exchange rate, be aware you’re likely paying a hidden exchange rate fee over and above their transaction fee to make up their profit margin.

Bank-to-Bank fees

Completing an outgoing money transfer sometimes means your provider must move funds from a local bank in your home country to a bank in another country. In this instance, the local bank may levy an additional outgoing international fee – on top of the transaction fee and mid-market mark-up. Some other bank-to-bank fees include: Initiation fees. Your bank may charge an extra fee for transfers done in person or over the phone as opposed to online. Recurring vs. one-time fees. Some banks offer lower transaction fees when you schedule recurring wire transfers. Tracer fees. The charge levied for setting up a trace on a previous wire transfer that hasn’t been received as expected.

Weighing up the pros and cons

When it comes to sending money abroad, not all providers are created equal, and there’s no one best method; this can make securing the optimal deal time-consuming and confusing.

Keeping the following pointers in mind can help you secure a fair deal and avoid nasty surprises when conducting an international money transfer.

  • Get the whole picture. Don’t judge a provider based only on its rates. Investigate the level of customer service and support it offers in the event something goes wrong.
  • Plan ahead. Unless it’s an emergency, take advantage of the available time to research the most favourable exchange rate and fees, etc.
  • Bulk discounts. Many providers will discount their fees or even waive them altogether if you send more money per transfer.
  • Save with same-currency transfers. It can work out more cost-effective all-round to send your recipient GBPs and have them transfer your payment into their preferred foreign currency.

Sending funds abroad needn’t be a stressful experience, especially not when you have MoneyTransfers.com in your corner. We make it painless to weigh up your options and choose the provider that best suits your needs.

Conclusion

Money transfers may be the simplest and safest way to send funds abroad. But the sheer number of provider choices can be overwhelming.

Factors like where the funds originate, where your recipient is based, the exchange rate, payment method, various fees, and so on can make all the difference between your £1,000 transfer costing £5 or £50. That’s why it pays to shop around.

Whether you’re looking for the fastest or cheapest way to send funds MoneyTransfers.com equips you to make an informed decision based on transparent, up-to-date provider comparisons. So, just like Sharon, you can ensure you get the best deal when transferring money internationally. Sharon is not the only one who saves on money transfer fees, Paulo manages to save on recurring fees every month to fulfil his dreams.

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