Thanks to the evolution and advancements in financial technology, it is now possible to make international money transfers quickly and painlessly.
However, such transfers can cost you some money. It’s either you get charged a fee on top of the principal amount you wish to send, or the recipient receives a lower amount, or both.
If you don’t look at the charges imposed on your transfer closely, you might be left wondering what the extra fees are for. And most of the time, these fees can really hurt the pocket. So, if you want to transfer money overseas for personal and business purposes, you should look out at these hidden charges.
You can also watch this video for more information on cheaper ways to transfer money overseas:
What’s an International Money Transfer?
International money or wire transfer refers to a sum of money that is transferred from one country to another, which is processed electronically by banks and non-bank parties (such as online money transfer services, Automated Clearing House network or ACH, and transfer operators). It is the preferred method of sending money over shipping cash or a cashier’s check because of higher security, guaranteed accountability, and stronger infrastructure.
International money transfers are carried out person to person, customer to business, or between businesses. The speed of the process depends on the type of service you use. It can take a few minutes to a week. The fastest method is usually the priciest. However, companies are now making ways to lower the cost of the prices because of tight competition too.
Differences in Foreign Exchange Rates
An international money transfer means you’re sending money using the currency from your country, and the recipient will receive the money in their her country’s currency. In doing so, you will deal with foreign exchange rates, which determine how much money you sent will be converted into the domestic currency of your recipient.
Exchange rate spreads inflate the cost of your transfer because different banks have different exchange rates. Interbank rates are also often charged with markups, therefore making them costlier. Thus, the foreign exchange rate you see in Google isn’t always the same rate banks use when transferring money overseas. There are still additional charges so they can profit from the service.
Hidden Fees of International Money Transfers
Hidden fees typically involve commissions and weak exchange rates built into the money transfer process. These fees are not only charged to the sender but also the receiver.
Here are some of the hidden fees charged by international money transfer service providers:
Hidden Currency Conversion Fees
Every bank or non-banking institution has its exchange rate fee, which applies when sending money from one foreign currency to another. Banks usually charge incredibly high hidden currency conversion fees depending on the currency. The banks take advantage of the opportunity because customers don’t see the fee. Also, the fee isn’t declared, and you might not pay attention to it. People usually think that these fees are legitimate costs or normal of transferring money.
Here are the hidden currency conversion fees of some non-banking wire transfer service providers (based on transferring $500 to Indian Rupees for the payment of employees in India):
- Money Gram: $2.50
- Western Union: $3.50
- Ria Money Transfer: $3
- Xoom: $7.50
- PayPal Mass Pay: $12.50
SWIFT Tracing Fee
The SWIFT tracing fee is required to track the funds you’re sending to another country. Because there are multiple parties involved with the process of sending money through SWIFT (Society for Worldwide Interbank Financial Telecommunications), it serves as the primary network or communication platform for international banks to process money transfers. While this fee is foreseen as a hidden charge because it should be expected that money transfer providers should trace the funds, the service doesn’t come for free.
Here are the advantages and disadvantages of SWIFT tracing:
- You’ll know how the money has traveled or the whereabouts of the funds.
- SWIFT retraces the steps to see exactly where the wire went, which can be done after the payment has traveled or done in retro.
- SWIFT network is already out of date, so transfers are often lost.
- SWIFT fees that are charged to customers don’t cover losses.
Quick Send Premiums
In most cases, banks and international wire transfer services are processed between 3-5 business days. However, if you’re inclined to do the transfer urgently so that the recipient receives the money that very same day, you will have to pay more to expedite the process.
Here are the facts about quick send premiums:
- The explanation for this inflated fee is because banks usually use those business days to check the legitimacy of the transfer and protect their business against frauds and money laundering.
- The process of crediting funds from the source bank to the recipient bank may also take 24 hours to complete. Plus, banks use this time to “float” your money and gain as much interest as they can.
- Typically, you have to pay an extra 10% of the original amount that you’re about to send to move the money quickly.
So, when you need to hasten this entire process and make money available to the recipient within that same business day, you have to pay a premium for it.
Banks’ Other Charges
Banks also impose “other charges” according to their discretion. Often, these extra charges are vaguely explained. If you’re weary and simply want to get the transaction over and done with, you’d rather not ask where the extra payments went.
This may seem trivial if you’re sending money globally once or twice. However, if you do so repeatedly, the cost of extra charges can add up, and your budget typically bears the brunt. That’s why it pays off to ask for an explanation of what the other charges are all about when you’re a regular sender or receiver.
Here are the facts about banks’ other charges:
- These other charges may include overhead fees and inter-bank fees or the cost associated with working with another bank to transfer funds.
- For instance, if you’re about to send $500 to a loved one internationally, he or she may only receive $497. This way, you’ve lost $3 in “other charges.
Alternatives to Bank International Wire Transfers
Aside from banks, you can also send money internationally via ACH, online money transfer services, and transfer operators. It’s nice to have several options when sending money to family, friends, sellers, or employees to another country. That’s why covering this topic is worth doing.
Here are the alternative options to bank wire transfers and hidden fees explained:
The Automatic Clearing House or ACH is similar to wire money transfers because it is also bank-to-bank. ACH money transfers work in a batch process, unlike bank wires that are relatively instantaneous. Because the transactions or funds ACH receives are stored until the next day, the transfers are cheaper as compared to bank wire transfers. But the process is slower, taking up to 2-3 business days.
ACH transfers move funds from one bank account to another at a more affordable rate, which is why it’s considered as the preferred payment method of private and public entities alike. Small businesses and enterprise corporations are now using ACH as a preferred payment method. The fees of ACH can be perceived as hidden fees without proper understanding. So, it pays off knowing what the ACH fees are so you can dispute a charge for your peace of mind and convenience, as well as making the right decision whether this option is best for you or not.
Here are the fees associated with ACH:
- Account Fee: Covers monthly statement distribution, customer service, maintenance of processing systems, transaction monitoring (for fraud), and compliance with the reporting requirements of the IRS.
- Debit Fee: It is a transaction fee for every payment or individual ACH debits from your customers to you, covering the cost of processing the transaction. It ensures that the funds are transported from the sender’s bank account to the recipient’s bank account via the ACH network. It ranges from $0.15 to $0.95.
- Credit Fee: This fee is higher than a debit fee because it is often associated with larger sums of money with higher risks to the merchant services providers.
- Discount Fee:It can be considered as a hidden fee because this fee is not a discount. It is a percentage-based fee that is only applied to some transactions, which compensates for the heightened risks associated with high-risk transactions or industries.
Transfer Operator Fees
Using transfers operators like Western Union or MoneyGram is one of the fastest ways to transfer funds internationally. However, it is also the most expensive. These transfer operator services can drop cash at different locations worldwide. You don’t have to worry about bank business days because the recipient can get the money overnight or even within a few hours.
Transfer operator fees are calculated by assessing the following:
- The distance the money has to travel or location of the recipient
- Amount (the larger the amount you send, the higher the cost)
- Speed in which the sender wants the recipient to receive the funds
The initial cost of a wire transfer is not what makes transfers expensive, but the poor exchange rates. Regardless of the criteria you fall in, expect to lose around 8% to 15% of your transfer when using these services. While you avoid the issues of transferring money through banks because of directly connecting the sender and the receiver, the cost using transfer operators is too much, most especially when you’re sending a large amount of money.
Online Money Transfer Services Fees
You can avoid issues with international transfers through tech-driven platforms using multi-rail technology, which ensures effective tracking functionality and further security for global payments, mostly without hidden fees. These online money transfer services are called new payment technology channels.
Because of advancements in technology, unbanked platforms like Veem, WorldRemit, and OFX are expanding. Fintech companies provide the cheapest and fastest ways to send money anywhere in the world. Banks are offering a wide array of financial products and services. However, the exchange rates that banks provide are the weakest, which results in high fees. Online money transfer service providers specialize in sending money overseas, involving large sums of money and currency that can beat traditional means.
Here are the benefits of using online money services:
- Competitive exchange rates
- Minimal fees or zero hidden wire fees
- Fastest transfers with competitive pricing
- No caps applied on the international wire amount
- Real-time online payment tracking
- Payment services worldwide
- Live support
How to Avoid Hidden Fees
When you want to transfer money internationally, it’s always expected that you should accept the fact that it will cost you money. Most bank clients no longer question the fees they need to pay to use this service but very rarely do they look at other factors, such as foreign exchange rates, when doing so.
The service gets even more expensive when the recipient needs to receive the money urgently or when you need to send a more substantial amount. However, you can reduce the fees you need to pay by:
- Wisely choosing your money transfer vehicle. Apart from banks, you may opt for international wire transfer providers that offer lower fees and charges but competitive foreign exchange rates.
- Scheduling recurring money transfer. If you need to send a predetermined amount of money on a predetermined date, some banks offer recurring money transfer services, which help you save a couple of dollars.
- Regularly checking foreign exchange rates. Foreign exchange fluctuates almost every second of the day. It’s a fact that’s out of our control. However, if the transfer can wait until Forex is more favorable to you, then do the transfer at that moment.
The cost of international money transfer can hurt the pocket, especially if you’re bound to send money regularly or in large amounts. It’s sometimes difficult to do away with these hidden charges and you just bear with them to continue using the service. However, you have the option to pick a better money transfer vehicle with the best rates and lowest fees.