Pay fewer fees, get a great rate and avoid common scams when sending money overseas.
Whether conducting business internationally or sending money to relatives in another country, many Canadians are finding much cheaper and more efficient ways to send money overseas than the average bank offers.
The secret to saving extra cash is to use a range of dedicated money transfer services and products which offer much lower fees, better exchange rates and more options than regular bank services.
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Choose the best money transfer service with the answers to these questions
Beware of the traps and pitfalls
With many hidden fees, delays on sending funds and charges from banks at both ends, you can end up spending a lot more money and time than you originally anticipated. Furthermore, you must also consider if there is a margin on exchange rates, which will also increase the amount of money you’re spending.
When exchanging money or sending it overseas, you have probably noticed that the exchange rate you see reported in the news, which is known as the wholesale or mid-market rate, is never the same rate you get when you make a transaction. Service providers make their profit on the margin added to the mid-market rate. This margin can differ significantly between service providers, so this is why it is important to compare products and services available to you to find the best overseas money transfer solution. Take into account the destination of your transfer, the amount you are sending, and the services available to you to help you decide which is best suited for your specific transfer.
How can you transfer money overseas?
International money transfers let you send money quickly and securely to countries across the globe using different currencies. Service providers offer several different ways you can transfer money overseas including:
Online transfer companies offer some of the quickest and cheapest ways to transfer funds overseas. You must be comfortable making financial transactions over the Internet since you have to set up an online account to send your money electronically.
Examples of online money transfer companies include OFX, World First and TorFX. And there are an increasing number of others because the industry is continuing to grow. Once you’ve created an account with a specific company, they transfer your funds to your recipient’s account.
Some providers have a minimum transfer amount (around $500 – $2,500), while other companies have no minimum. Companies may also charge transfer fees and transaction charges when the money is deposited at the other end.
Case study: OFX
As an example, say you want to transfer money overseas using OFX. You will need to send at least $250, but OFX will charge wholesale foreign exchange rates and a smaller margin, as low as 0.3%, compared to the average bank rate of 4%.
OFX charge their fees in the currency you are selling in and will waive the fee completely if you transfer over a certain amount. If you are transferring less than $10,000, the fee is $15. The online money transfer market is growing all of the time and becoming increasingly competitive, so if you choose this option to send money overseas, shop around for the best possible deal.
You can transfer money to an overseas bank account straight from your own bank account. This method is also known as an international money transfer, a telegraphic transfer (TT), or a wire or SWIFT transfer. While this option is convenient and secure, it does have downfalls.
It may take several days for the money to go through and there are a number of fees to consider. Your bank and the bank at the receiving end of the transaction may charge sending and receiving fees, while the exchange rate offered can have a huge effect on how much the transaction ends up costing you. The Royal Bank of Canada transfers money to almost every country worldwide and allows you to send many different currencies, but you have to pay a $13.50 fee for the transfer. Although you do not have to pay to receive funds into your RBC account, your recipient may have to pay extra to receive the funds on their end. The bank only allow you to send a maximum of $2,500 and exchange rates vary, so shop around for a good deal. Many other popular banks in Canada offer similar deals including BMO, TD, Scotiabank and CIBC.
Money transfer companies can send your money abroad using cash or electronic methods (via debit or credit cards). These companies have a storefront or third-party convenience store counter and allow your recipient to collect the funds from the money transfer office in their country. While this cash transfer option is usually extremely quick, it can be expensive.
Companies such as Western Union, Xpress Money and MoneyGram offer this service. Once you’ve set up an account, you may be able to transfer money online, over the phone or using a bank card, however this will depend on the company. MoneyGram have a partnership with Canada Post and many counters can be found in grocery stores, post offices, and shops across the country. This gives you access to agents who can help you send and receive money from around the globe.
MoneyGram has more than 320,000 agent locations worldwide and the fees involved in transferring money overseas can vary depending on a range of factors including how much money you are sending and where you are sending it. As an example, MoneyGram’s cost estimator calculates that transferring $1,000 from Canada to Australia will incur a fee of $50.
Safer than sending a personal cheque overseas, an international money order (IMO) is when you give your money to a bank or post office and get an international guaranteed cheque. Think of it as the international equivalent of a bank cheque.
Once you have posted the cheque to the recipient, they can cash it in at their local bank and deposit the money into their own account. While this transfer method is secure, mailing a cheque will take longer than an electronic transaction and can cost more money. You will have to pay to purchase the IMO and there may be transaction costs when the money is deposited into the overseas account.
Take advantage of offers such as “first transfer free”.
With plenty of competition in the market, money transfer companies go to many lengths to gain your trust and your business. Many companies will offer deals such as “get your first money transfer for free when signing up”. You should be aware of any rules that may apply like standard fees applying thereafter for transactions that fall below their fee minimums. For example, WorldRemit offers zero fees on your first money transfer. Transfers thereafter cost $3.99 to send money to Australia, as an example.
Lock in a forward exchange contract.
If you don’t have enough funds available but want to secure a certain exchange rate now, you can enter into a forward contract. This ensures that you get the lowest rate and have the ability to purchase or sell your currency now, at the prevailing rate.
Settlement for the transaction happens on a pre-determined date in the future, up to many months in advance, depending on the conditions of the contract. Typically you will be asked to provide a deposit, usually a certain percentage to be held as security to finalize the transaction. Once the contract is implemented, you will be required to send the remaining balance on the date specified in your forward exchange contract.
A forward exchange contract is similar to an “agree now, pay later” situation where you can lock in an exchange rate even if you don’t have the money available. If rates go down, then you won’t be affected, but you may lose your deposit, depending on the conditions of your contract. However, if rates improve and go beyond what you locked yourself in for, you may not be able to change your contract.
Use a service that is fit for the amount you are sending.
A lot of transfer companies will waive their fees if you transfer over a certain amount of money. If you’re transferring large amounts, around $10,000 or more, it may be best to use a transfer company. For smaller amounts of money in the hundreds, you may want to use a bank transfer or similar service, such as PayPal.
Are free international money transfers real?
It is unrealistic to expect completely free international money transfers. While international money transfer companies are cheaper than the banks, they still take a small margin or charge small fees to make profits. International money transfer companies make much less profit than the bank, making them the better option to use when sending money overseas.
International money transfer companies usually charge a margin on top of the market rate and may charge fees for transfers. Fees are generally only charged when small amounts of money are sent overseas.
To get a truly free transfer, you will need to send large amounts of money overseas, usually over $10,000. This is because international money transfers actually save money when you transfer big amounts, due to economies of scale.
Please note that the process of sending money overseas using a bank is different for every provider. The example below shows just one of the ways you can initiate a transfer from your bank. Ensure you have registered for Internet banking, log into your account and choose the “international money transfer” option. With TD, you have two options to send a transfer: wire transfer or Visa money transfer.
You’ll need to know your recipient’s SWIFT/BIC code, account number and account name. Depending on your bank, you may also be able to send the funds using a Visa Money Transfer. Much like a wire transfer, you’ll need to know your recipients details including full name, address and visa information.
In most cases, you will also need to provide the recipient’s residential address and phone number. If you’ve selected to send a wire transfer, choose which of your accounts you would like the funds to be withdrawn from.
Here is another version of what it could look like on your screen (RBC).
Choosing the best option to send money overseas can be difficult at first, but if you do your research, compare and shop around, you can transfer your funds quickly and efficiently while saving money along the way.