Avoid this bank rip-off when sending money abroad

·4-min read
Avoid this rip off when sending money abroad
Avoid this rip off when sending money abroad

International money transfers are typically for sending currency to someone abroad, for example if you want to buy a foreign property or move your funds when you emigrate.

However, choosing the wrong provider could see you lose hundreds of pounds in rip-off fees and currency exchange rates.

In fact, new data shows some high street banks charge up to six times more than the cheapest online money transfer providers.

If you need to send cash abroad, find a cheap deal by visiting our independent money transfer comparison site. It only takes seconds and could save you a fortune!

Alternately, read on to find out more about sending money overseas for less.

The worst ways to transfer money online

The businesses that probably spring to your mind first when considering an international money transfer are the most expensive.

High-street banks, Travelex and Western Union all find it very easy to get customers, so they don't bother with a low price. They can easily cost you an extra £600 than their less-known competitors on a transfer of £10,000.

Save money on international transfers with a broker

There are a lot of companies that are cheaper middlemen for your transfer than banks.

Some brokers now even settle their currency deals as peer-to-peer arrangements, where you exchange with other people and the broker takes a cut. This is putting strong downward pressure on exchange costs.

It's easy to see which is cheapest; you just compare the actual foreign currency you're getting after all costs between lots of different brokers.

You could try this comparison service, which does this for you.

The cheapest currency rates will vary by the day

The cheapest provider one day might not be the cheapest the next; it sometimes depends on their stocks of currency.

If a provider is low on one foreign currency, it might charge you more for it. If it has too much money in the other currency, it might charge less in order to restore some balance.

Some providers are cheaper in one currency than another, so you should think about comparing again when you're doing a deal in a new currency too.

Finally, some providers manage to be cheaper on small amounts and others specialise in larger ones. Be sure to compare rates again if you do a transaction of an unusual size for you.

How providers make money off you

Generally you won't be told the price you have paid for your money transfer.

Yes, you're told you'll get, say, €6,000 for £5,000, but that's not the price. You haven't paid £5,000, you've exchanged it. After all, you've got the €6,000, not the middleman. So where's his cut hiding?

The price you pay to the middleman is made up of two elements.

The first are the fees, which some providers charge. This might be a flat fee or a percentage commission. You might pay other supplementary fees so watch out for those too.

The middleman may also take a cut in the form of the exchange rate.

The "real" exchange rate is called the interbank exchange rate, which is the average of many banks' rates when they're exchanging different currencies between themselves. You and I can't usually expect to get the interbank rate, but that is the rate you usually see when you search for an exchange rate.

So for example at the time of writing the interbank pound-to-euro exchange rate is £1 to €1.18. However, an international money transfer provider might offer you just €1.09 or €1.13, for example, and keep the difference.

Transferring £5,000 at the "real" rate would get you €5,900. But since you're just getting, say, €1.09 per pound, you'll get just €5,450. That's a hidden cost of €450.

To find the price in pounds, you'll need to divide that foreign cost by the real exchange rate. €450 divided by 1.18 is £381. That's the hidden cost that you're almost never told about.

While some providers charge you both in the exchange rate and through commission, don't assume they're the most expensive.

Many companies are "commission free" but offer such dreadful exchange rates that they actually cost you twice as much.

Locking in your currency exchange rate

Some brokers allow you to lock in exchange rates for up to 24 months. These are called "forward contracts". This is really useful if you need to be sure the price won't get worse. This can cost extra, so be sure you need it.

Alternatively, some let you set an exchange rate that you're willing to deal at, and the transfer will only go ahead once exchange rates rise to match.

You should be cautious about playing guessing games about the direction of the currency market – especially in such uncertain times as these.

In our experience, you really need remarkable insights about the currency markets at a particular point in time to be confident of making a good call.