Are you starting a new life in a land far away? Buying that summer house that you always wanted? Or simply planning a holiday? There are many reasons to transfer funds abroad, and as daunting as it may seem, it’s actually pretty simple with a little research. Read on to learn the ins and outs of how to send money abroad!
What Are International Money Transfers?
International money transfers refer to sending funds to other countries than the originating country. Depending on the countries involved, it usually means converting one currency to another, the rate of which fluctuates constantly.
How to Send Money Abroad Using Money Transfer Services?
With an anticipated compound growth rate of 14%, the digital money transfer services market is expected to hit $36 billion by 2028. The market is vibrant,] and that leaves users with plenty of options to choose from. You can start using the best service for your needs with three easy steps.
Step 1: Compare providers to find the best service for you
Step 2: Sign up with your chosen provider
Step 3: Transfer money
Ways to Transfer Money Abroad
There is a range of options to send money abroad, and a little research will help you choose the right option. Here is a rundown.
Money Transfer Services
Money transfer services are easily the cheapest and fastest way to send money abroad while not jeopardizing the security of your funds. Most services are heavily regulated by leading institutions and display their credentials on their websites for clients to check.
Depending on the amount and reason for the transfer, most transactions take only minutes to arrive at the destination. There are different fee structures to choose from, and the providers tend to keep their fees along with the exchange rates as competitive as possible — routinely beating the high costs you’ll get from high street banks.
Wire Transfers and Bank Account Transfers
Bank transfers move money from one bank account to another using the SWIFT system. A wire transfer doesn’t necessarily need a bank account to deposit or withdraw but will still run the transfer through banks.
As multiple banking systems are involved, both methods usually come with high fees and poor exchange rates. They provide a good level of safety but are still the least ideal way for international money transfers for those prioritizing low cost and speed. Due to the tedious checks within the SWIFT system, the whole process can take up to five working days.
Challenger banks typically operate as digital entities, with Revolut, Sterling, and N26 leading the market. While they are subjected to the same rules and regulations as established banks, they can offer their services for very low prices as they don’t have high overhead costs.
Dubbed as immigration-friendly banks, their services generally support multiple currencies and allow clients to do transactions from any account with a single debit card. They are, though, unable to offer lower fees or better exchange rates than money transfer services.
The fee structure depends on the bank, with the most common being percentage markup. Some of them partner with online providers to perform the transaction (such as Monzo’s partnership with Wise) — which means costs coming from two different entities. Although it can be convenient for those who do most of their banking from a debit card. Challenger banks are not the most ideal way to transfer funds abroad for those who value low costs.
Mobile Apps and Payment Services
The last few years brought a sharp increase in the use of payment systems such as Zelle, Venmo, Apple Pay, and Google Pay. While the latter two are used to pay for goods in several countries, transaction features remain largely US-centric, just as the other services listed. US users can use Google Pay to send money abroad through Western Union or Wise — but that’s about it.
PayPal, a veteran in mobile money transferring, has an impressive reach of 200 countries around the world. Despite being secure and quick, it is regularly criticized for poor exchange rates and high transaction fees.
While not many providers support the cash-in payment method, Western Union and MoneyGram being the leading names, a number of operators offer cash pickup services, including Remitly and WorldRemit.
Operators have a large global presence, and senders can find a close branch to deposit the money and choose the most convenient agent location for the recipient to pick up the cash. Both parties require some form of identification to verify the transaction.
International Money Orders
International money orders are the most straightforward, non-electronic way of sending funds abroad. A money order is a document, like a cheque, that the sender purchases from places like post offices, credit union offices, or banks. The sender then fills in the details and mails it to the recipient, who then cashes it at a third-party operator or a bank.
In comparison, it involves high fees and often takes quite a lot of time. On the flip side, they are quite accessible and easy to set up — none of the parties require a bank account to deposit or withdraw the money, and the transfer is easily verified with a form of ID.
How Much Do Money Transfers Cost?
The fee structure and the overall cost depend on the type of money transfer provider and the brand itself. Here’s a rundown of the involved costs.
Transfer fees are additional expenses the providers get from you to perform your transfer. There are typically three approaches to it: fixed fee, percentage markup, and no-fee policy. The senders tend to get better exchange rates with fee-based structures.
Fixed fee: The operator may request a fixed fee regardless of the transfer amount or may change the fixed fee above or below a certain limit. Fixed fees tend to be small for remittance companies, ranging from $0.50 to $3. Per transaction fees are higher (up to $50) with high street banks as it covers the additional costs that come with using the SWIFT system.
Percentage markup: The operators take a certain percentage of the transfer as a fee — which is not ideal for large or regular transfers as it quickly adds up. The margins can be anywhere between 0.4% to 6% for money transfer providers. Note that many banks charge up to 3% on top of some fixed fees.
No fee: Some operators go with a no-fee policy and offer a poorer exchange rate instead.
Exchange Rate Margins
Some operators use a fee-free policy that makes money by offering less competitive exchange rates instead. To do that, they add a profit margin on top of the mid-market exchange rate, which is called the spread, so the sender gets a poorer rate for their currency conversion. The “margin” refers to the percentage difference between the exchange rate at which trade occurs and the rate the customer gets. Margins typically range from 0.4% to 5%, while rates on high street banks hover around 2% to 5%.
Note that operators seldom display the exchange rate margins, though most of them reveal it to explain how they make a profit off of international transfers. It is possible to calculate the difference by comparing the quote given by an operator and the mid-market rate from an independent source.
When using bank transfer with money transfer operators, there may be other unexpected fees during your transaction. It depends on the countries and the banks involved and may charge either the sender or the recipient. Many operators have contracts and account with selected banks — to avoid unexpected fees as such, it is ideal to contact the operator while doing a bank transfer and see the listed banks if there are any.
Some operators offer express services or alternative delivery methods for an additional fee. These costs tend to be small and negligible for one-off transfers but may add up for regular payments.
Factors Impacting Fees
As you can guess, there isn’t really a way to send money abroad that is completely free. But there are ways to avoid or minimize the costs that come with it; here’s a rundown of top factors determining the cost:
Transfer amount: If the sender is going forward with a percentage markup, the fee will naturally depend on the amount. But sometimes, clients can get better or worse fixed fees or exchange rates depending on the size of their transfer — this will depend on the specialization of the money transfer operator.
The countries and currencies involved: Operators may increase the exchange rate markup or their fees for exotic or volatile currencies.
Time of the transfer: While many transfer operators can perform transactions around the clock every day of the week, some require an additional fee to move your funds after hours and on weekends. To avoid this, you may want to consider completing your transfers within working days/hours.
Do You Need to Pay Tax on Money Transfers?
The tax implications of your international transfers depend on the amount and reason for the transfer, as well as the countries involved. Some countries don’t impose a tax on payments, regardless of the size, as long as they are not work-related income. Some countries consider all payments, including inheritance or monetary gifts, as income and subject them to income tax.
On the other hand, remittances are almost always subject to taxation as long as the worker performed the task within the territory of the destination country. Which end is responsible for tax returns depends on the type of business contract — with contractors and freelancers, it is usually the recipient’s responsibility to do the tax returns, but if your business has operations or employees in the country, the sender is potentially under a tax burden as well.
Each country’s regulators typically track foreign transfers and countries with a long history of money laundering tend to keep a tight ship. The operators typically inform their clients of legal obligations should they arise prior to the transfer and let them know when, where, and how to declare large sums.
How Long Do Money Transfers Take?
The waiting times range from half an hour to five working days, depending on the provider, transfer amount, transfer type, and currencies involved. High-street banks sit on the worse end of the spectrum, with a transfer typically taking up to five working days to complete. Methods like international money orders also tend to take quite a bit of time as you’ll be waiting for the postage times.
Online money transfer services and wire transfer providers tend to get the job done much quicker than the banks, but they also vary depending on the firm, deposit method, amount, and sender preferences. Some providers, like TransferGo, offer an express option for a small additional fee.
Large transfers typically take longer regardless of the operator of choice, as the senders must satisfy a compliance team to complete the transfer. This often includes detailing the origins of the money by supplying a series of documentation.
Are Money Transfer Services Safe and Secure?
Most money transfer services, and all listed on Money-Zine, are authorized and regulated by major international institutions and generally considered an Electric Money Institution (an EMI) by the likes of the UK’s FCA or Australia’s ASIC. This means that they are contractually obliged to safeguard your money and personal information — which are vital to protect yourself against identity theft, fraud, or money laundering. It is also wise to check whether the operator has a liquidation plan in place before sending large sums, which specifies what happens should the firm go bust, as liability is one of the major risks with newer operations.
Among the money transfer options, bank transfers are generally perceived as the safest option as it involves multiple banking systems, but in reality, money providers also abide by similar regulations in terms of the security of the funds. Some providers, like PayPal or Western Union, maintain a buyer protection plan or dedicated fraud team to combat transfer trickery. It’s better to opt for services with extra protection plans when sending funds to a dubious recipient.
What Are Forward Contracts and Spot Contracts?
Forward and spot contracts are different types of foreign exchange products offered by most providers, including TorFX or Currencies Direct. Each comes in handy in certain situations and serves different purposes.
Spot contracts are the standard exchange agreement that uses the conversion rate at the transfer request's time, so it depends on the exchange market at the given time and day. It is useful when you need to make an urgent international payment.
Forward contracts constitute an agreement to move the funds at a later date on an agreed-upon exchange rate. So technically, the sender can set the exchange rate as $1 = £0.80 in January, and order the transfer to take place in June. Even if $1 equals £0.60 in June, the transfer will occur at the agreed rate in January. This is a very handy service to use to protect your funds from exchange market fluctuations for your large payments.
Usually, the costs associated with the types of transfers don’t change — but it's imperative to confirm it with the provider.