If you’re familiar with the practice of sending money abroad, you’re certainly not alone. In fact, the World Bank estimates that global remittances will climb above $600 billion (USD) in 2018 alone. It’s such a big global business that there are hundreds of options for individuals and companies looking to send money to destinations outside of their own country. The options range from big banks to corner stores and everything in between.
Despite the ubiquitousness of money transfer services, the process itself remains poorly understood. Many local shops offering remittance services try to take advantage of this reality to squeeze some extra profits out of their unwitting customers. Banks, too, have some tricks up their sleeves when handling customers’ international money transfer requests. To clarify the situation, here are the important things to watch out for when sending money abroad.
Free is never really free
When you are trying to decide which service to use when sending money abroad, it’s easy to be tempted by the lure of the “zero fee” offers that abound in the market. Banks, in particular, commonly make such offers to their accountholders as what they call a value-added service. On the surface, these offers look like a steal, but most of the time, the math doesn’t bear out. The fact is that the banks aren’t running a charity, they’re running a business, and they’re going to make a profit even if you don’t realize they’re doing it.
Most of the time, banks make their profit by offering a less-than-optimal exchange rate when converting the local currency to that of the destination country. Depending on the size of your transfer, they could be charging a rate that is equivalent to many times that of your other available options. The only time a zero fee offer is likely to be your best bet is if you are transferring money to a country with a currency that’s pegged to your own.
Look out for band pricing
If you look at the fee structure of the average money transfer service, you may notice something odd. In many cases, the fees that these companies charge can vary quite a bit depending on the amount of money you are trying to send. It’s not that there’s anything wrong with a graduated fee structure, but the devil is in the details.
In some cases, the fee scale on offer isn’t in proportion to the exact amount of money you are sending abroad, but rather to ranges of amounts. The practice is known as band pricing, and it means that it could be many times more expensive to send € 500 than it is to send € 501. If that weren’t enough to worry about, some money transfer services also routinely change their price bands, so repeat customers must remember to check before each transaction.
Check delivery time
Another thing to watch out for when sending money abroad is the length of time it will take for your money to arrive at its destination. A reputable money transfer service should be able to give you a reasonable, if not exact, an estimate of when the funds you are transferring should arrive at the destination. If they are unable to provide you with this information, you should walk away immediately.
In many cases, transfers may be accomplished in a single day, although sometimes in exchange for a higher fee. Customers in the Eurozone may even be able to transfer money between financial institutions in different European nations in real time through the use of the SEPA payment system. No matter how you choose to send money abroad though, check to make sure it will arrive in an amount of time that suits your purposes before you initiate a transfer.
Beware of directional pricing
Another detail that often goes overlooked by consumers when sending money abroad is the fact that a transfer may not have the same costs in both directions. It’s very easy, for example, to assume that sending funds from the U.K. to Italy would cost the same as from Italy to the U.K., but that is not always the case. The difference between the two routes can be significant.
In the example listed above, it is generally far less expensive to transfer money from the U.K. to Italy than the reverse. Sometimes, the difference in fees has to do with volume, and in others, it comes down to local overhead costs. Either way, if you’re not careful, you might end up spending many times more than you expected if you need to transfer money back from a destination that you sent money to for far less.
Read the fine print
If you’re beginning to notice some broad similarities in the topics above, you’ve gotten the message. It’s because most money transfer services use a similar array of tactics to make as much of a profit as possible on each transfer they facilitate. There’s nothing wrong with a business trying to turn a profit, mind you, but there is certainly an element of subterfuge involved in some of their practices. The good news is that if you’re careful, and pay attention to the fine print, there are plenty of great and inexpensive deals to be had – and you’ll have a much easier time finding the best service for sending money abroad.
