Like most things, international money transfers do not seem like the most affordable activity to take part in. And you're right. We look at the two main reasons sending money overseas is so expensive and what you need to look out for to make it less so.
Banks and money transfer specialists make money in two ways. And these are the same two reasons that international money transfers can be so expensive for us. Let's have a look at these reasons.
Websites like XE.com or Google quote a rate known as the “Interbank Rate” which is the exact rate at which one currency can buy another. When banks are buying currency, they buy it in millions and sometimes billions of dollar amounts. Because they are buying so much, they are able to buy the currency at this interbank rate.
In an ideal world, our Australian dollars would be worth a set amount of each currency and it would never fluctuate and we’d be able to buy currency for exactly what it was worth.
Unfortunately for us, as consumers, we are rarely purchasing or transferring money in anywhere near the quantity the banks are. This means there is a pesky little thing known as the exchange rate margin added to the rate.
This is how providers and banks make money - they buy the currency at one rate and sell it to you at a worse one. This makes the whole process a little more expensive. The higher the margin, the less foreign currency we can get for our Australian Dollars. No matter what you’re doing with currency, whether it be transferring it overseas or exchanging cash for travel - this is the thing you need to be conscious of.
In most cases, the exchange rate is the most important factor in determining how expensive your international money transfer will be. Having said this, the margin is not the only way that banks and money transfer specialists make their money. They can also charge you a fee for making a transfer with them. Some providers will have set fees, and some will be percentage based. CBA recently made headlines for reducing their international transfer fees. However, it really didn't make much difference to the cost of making an international transfer with them.
On the other hand, Western Union charges notoriously high fees for making international money transfers with them. Sometimes up to a hundred dollars for a single transfer! In this instance, their fees can make the transfer substantially more expensive, regardless of the rate.
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