[Please read my disclaimer -Ed.]
Saving money is something that is near and dear to the hearts of many people. Some people who have been in debt appreciate an opportunity when they see one. This post will start with a frank discussion about banks.
Some thoughts about bank fees
Many people use the services of banks for checking, savings, and credit, with very mixed results. Those who fall behind on credit card payments will have to pay late fees on top of interest charges, and they may even take a hit to their credit score. The same may be true for those who fall behind on mortgage payments or payments for a personal loan. Those who overdraw on their account may have to pay overdraft fees depending on their contract. Some banks even charge a fee for not meeting minimum account requirements every month. None of this should come as a surprise nor is any of it necessarily malicious; banks are in the business of making money for banks.
But there is another component to banks that many of us get exposed to at some point or another. I’m referring specifically to international money transfers. My business requires me to conduct transactions with clients in Cyprus, England, the Caribbean, and the United States. I contract the services of tech experts to provide for my home-based business.
I pay them as freelancers, and I receive payment from international clients too. At times, these money transfers can be substantial. I’m always surprised at the difference between the invoiced amount and the net amount received from my clients. When I go through banks like HSBC, Bank of America or Barclays, the fees on international wires are steep.
It’s not only expensive to send or receive money internationally, it’s the exchange rates that banks charge that really gets my goat. The currency conversion rates that you see quoted on Bloomberg, or Reuters are hardly ever the same rates that your bank charges you when you convert dollars to euros.
That’s because banks are in the business of making money. The margin that they charge over and above the published rates is highly unfriendly to money senders. On top of this, there are many other hidden fees and charges imposed by banks when you are transferring money abroad. Banks may be great for sending/receiving money domestically, but they don’t pass the litmus test for international money transfers.
How to Save on International Money Transfers?
I decided to conduct a little research into the best options available to me when sending money abroad. The literature is peppered with facts about why banks are no longer the best way to send money internationally.
For starters, banks can charge you up to 3.5% commission on one way transfers. Let’s assume that you are sending $20,000 abroad – that amounts to $700 in commission alone for a single transfer. Two-way transfers would cost you up to 7%, possibly more. Up until the Internet boom, banks had a virtual monopoly on international money transfers. Now, things are dramatically different.
You don’t need to go with a reputable bank to send money abroad since there are many other services available such as internationalmoneytransfers.org which lists costs associated with different money transfer sites. Allow me to elaborate on some of the reasons why you may wish to eschew banks when you’re transacting with international clients. For one thing, banks do not allow you to lock in a favorable currency exchange rate. When you work with reputable money transfer services, they will work with you to get you the best rate before you transfer money.
This is a big win. Imagine your displeasure if you sent £10,000 from the UK to the US at the time of the Brexit on June 23, 2016. The GBP was worth approximately $1.47, and it dropped to under $1.30 within short order. That means £10,000 could have been worth $14,700, or $13,000. That’s a big difference. With money transfer services providers, you will have greater flexibility when it comes to locking in your preferred rate.
The Verdict Is in
Another important point worth mentioning is the actual value of the money transfer. Many US banks will not allow you to send more than $20,000 abroad without making a fuss. Reputable money transfer services providers typically offer you better rates when you send more money abroad, and you get the benefit of a personal account manager who will work with you to lock in improved rates.
But it’s the cost savings that really resonate with everyday folks like myself. When you use these credible international money transfer services providers, your currency exchange rate is far better than what banks offer. There are no fees involved in the actual transfer, save for the low margins that these companies operate with. For me, it’s a no-brainer. Banks are great for domestic transactions but not so great for international transfers.