If you ever find yourself in a position where you need to send money abroad, you need to choose your method carefully. There are quite a few ways to complete an international money transfer today. But each of them has its own strengths and weaknesses.
The biggest problem is that the cost of these transfers is quite high. To get a clearer picture of just how high it is, you should know that migrant workers the world over lose about $25 billion a year because of transfer fees and currency exchange rates. That’s not counting businesses and ordinary people who need to send money to loved ones or buy something online.
Send Money Abroad: Is Cheaper Always Better?
All things considered, researching your options to pick the most beneficial for you in the long term can be one of the steps to take to secure a healthy financial future. But bear in mind that the cheapest money transfer solution might not be the best one. You need to take into account all advantages and disadvantages of using every method.
Here Are Some of The Most Popular Ways to Send Money Abroad:
Bank Transfers and SWIFT
Bank wire transfers are the most common method used to move money between bank accounts both within and across borders. These transfers are highly secure They also offer a number of advantages for businesses that require invoices and other documents for their reports.
About 239 banks use the SWIFT system for these transactions. SWIFT is a worldwide messaging network, which is used to send and receive messages with money transfer instructions. Note that SWIFT payments can go between different banks. Therefore, you aren’t restricted to looking for a branch of your own bank in a different country. This system assigns every member of the network a unique ID code in order to facilitate transfers. You will need to use this code in order to send money abroad.
The problem with bank transfer is their cost. To send money internationally, it can cost you between 3% and 7% of the transfer volume, on average. The cost mostly comprises of:
- Bank transfer fee (charged by the sender bank)
- Bank transfer fee (charged by the recipient bank)
- Foreign currency exchange rate
Note that depending on the location, your bank transfer might go through several “stops” in different banks. In this case, every other bank will add its own fees.
Pros:
- Highly secure
- Can send money anywhere
Cons:
- Expensive
- Transfers take up to a week
Note that all banks submit automatic reports on transactions they process, including Suspicious Activity Reports.
Online Money Transfer Companies
Online money transfer platforms, which are also often referred to as FX (foreign currency exchange) brokers, are rapidly gaining popularity as a method of sending money abroad. Currencies Direct, Moneycorp, OFX, and TransferWise are among the top providers that offer some of the best online money transfers today. These companies are growing rapidly, for example, TransferWise has reached $3.5 billion in value recently despite the fact that it launched only in 2011.
These platforms offer fast and affordable international money transfers. They mostly target investors and small businesses, which need to minimize the amount of money lost during transactions.
Online money transfer companies charge no or very low transfer fees. They also use low foreign currency exchange margins. This means that they offer a better FX rate compared to banks. On average, a transfer through one of these services will cost between 0.5% and 3% of the transfer volume.
It’s important to note that online transfer companies act as a third party in a transaction. You transfer money to the company’s account in your country. Then, the company transfers an equal amount to the recipient from its account in the recipient’s country. This way no money actually leaves the country directly. This is how such platforms manage to avoid costly fees.
Top online money transfer companies also offer additional services. You definitely should consider using FX advice and hedging tools. These can help you reduce the risks associated with changes in foreign currency exchange rates.
However, because of the method used, you need to choose your online money transfer provider very carefully. Top companies use bank-grade encryption to keep the customer’s information safe. Also, you don’t need to tie your bank account directly to the platform’s account. This allows you another layer of security.
The disadvantage of this method is that these platforms have a limited reach at the moment. Therefore, they might be simply unavailable in the country to or from which you need to send money.
Pros:
- Very cheap transfers
- Fast transactions
- Easy-to-use online and mobile apps
- Hedging tools
Cons:
- Not available in some places
- Some companies have minimum transfer limits
PayPal International Transfers
Today you can easily send money to over a hundred countries using PayPal. It’s the most popular digital payment service of its kind. The majority of online sellers use it due to its widespread availability. Also, using PayPal is very easy. You only need to create an account online and you’ll be able to both send and receive payments fast.
However, this service isn’t exactly cheap. Sending an international transfer through PayPal will cost you at least:
- 5% of the transaction fee
- 2.9% of the transaction amount if the funding method isn’t PayPal account balance or a bank account linked to it directly
- Fixed fee based on currency (varies for every country)
- Foreign currency exchange rate
Sellers have different fees for their store accounts. With payments coming from abroad, they will be charged 4.4% or 4.2% of the transaction fee depending on whether the purchase is online or in-store respectively. Moreover, they will also have to pay the same fixed fee based on currency and, of course, they will lose money on currency exchange.
All things considered, PayPal transfers should be cheaper than bank transfers. However, they will be much more expensive than the ones offered by online money transfer platforms.
This doesn’t change the fact that PayPal is convenient, reasonably secure, and available in a great number of countries. Therefore, you might be able to use it where those platforms have yet to reach.
Also, bear in mind that taking money out of your PayPal account to withdraw cash will cost an additional fee. Depending on the location and FX rates for the currency you receive the transfer in, this option might be too expensive overall.
Pros:
- Very convenient and easy to use
- Fast transfers
- Reasonably affordable transfers (depending on the country)
Cons:
- Can be expensive due to multiple fees involved
- Only users with an account can send and receive payments
- Limits on transfer volumes
Note that PayPal is the most popular, but not the only service of this kind. There are also Payoneer, Google Pay, 2Checkout, and ProPay to name a few. The same pros and cons apply to them. However, they have a more limited network compared to PayPal.
Traditional In-Person Money Transfer Companies (Western Union, Moneygram, etc.)
The so-called “traditional in-person money transfer companies” are services like Western Union and Moneygram. They are not literally in-person services today. These companies evolve with the times and offer a variety of online services today. However, they started as in-person and the majority of their facilities operate this way to this day.
This type of money transfers is very convenient. Sending money internationally through one of these companies requires very little paperwork. Also, the money will get to the destination very fast. Considering the fact that these businesses have been around for decades, their network spans the world. This means that they are available at nearly every point of the planet (over 200 countries).
It’s definitely the best option for emergency transfers because the recipient can get the money within minutes if necessary.
However, this convenience comes at a hefty price. Like banks, these money transfer companies use unfavorable currency exchange rates. They also charge high fees that differ depending on location. For example, sending money to India from your credit card will cost a fee of $34, which is 1.99% over the mid-market price.
Overall, Western Union and Moneygram can be expensive considering that there are cheaper alternatives. However, they are highly secure and convenient. Therefore, you should consider choosing these services to send money abroad, depending on the situation.
Pros:
- Available almost everywhere
- Convenient
- Allows for instant emergency transfers
Cons:
- Expensive compared to all other services (bank transfers included)
- Cash pick-up option is only available during the branch’s work hours
In Conclusion: Send Money Abroad for Cheap
One of the most important things to consider if you need to work abroad or go global with your business is money transfers. Sending currency across borders can be very expensive because of transfer fees and foreign currency exchange rates.
In order to minimize your losses, you need to choose the best money transfer method. Today it’s online money transfer companies as they offer the fastest and cheapest service with hedging tools as an additional benefit. However, there are places where these services are unavailable. In this case, you will have no choice but to use bank wire transfers or more traditional providers, like Western Union. If this happens, your best choice is to pick the cheapest of all available options.
