CBA announced a reduction in international transfer fees. We look at why this change doesn't make much difference.
With 80% of Australians still using their bank to make transfers overseas, any reduction in fees is welcome. However, Australian banks continue to put outrageous margins on the exchange rates they offer their consumers which begs the following question:
Until recently, CBA had a flat fee of $22 no matter how much you were transferring. With the reduction in fees, customers will now pay a fee of $6 for transactions under $1,000 and $12 for any transaction over that amount. Much more reasonable! Or is it?
The fact is, a reduction in fees can be helpful if the amount you’re transferring is small. Say, under $1,000. But if you’re transferring a generous amount of money, you should be much more concerned with the exchange rate you’re offered. The higher the amount you’re transferring, the less important fixed fees are and the more important the exchange rate is.
Let’s have a look at an example.
We compared the total cost of transferring $5,000 US Dollars with CBA before they made these changes, and afterwards. We then looked at this against four money transfer specialists; TorFX, World First, OFX and TransferWise. These rates and fees were correct at 4.24pm, Thursday October 26th 2017.
As we can see from the graph, the fees have a mild impact on the cost, despite CBA's fees being reduced. But when you're sending thousands of dollars internationally, it's the exchange rate margin that really impacts how much your transfer is going to cost.
Money transfer company TransferWise, recently called out all Australian banks for the poor exchange rates they offer their consumers. Transferwise estimated at the time the large mark-ups banks put on exchange rates were costing Australians billions of dollars a year. This is in contrast to TransferWise who pride themselves on offering the interbank rate on all their transfers.
Australian banks really do have a long way to go when it comes to international money transfers. Competitors like TransferWise, OFX, TorFX and World First offer favourable exchange rates and low or no fees. Therefore, there is no sugar coating the fact that Australian banks are nearly the most expensive way to transfer money abroad.
To round up, be aware that a reduction in fees from CBA or any other Australian bank does not necessarily mean that banks are a good option for international money transfers. In addition to charging high fees, these institutions also impose a large margin on the exchange rate they offer. Comparing your options is key to ensuring you get the best rate and fees for your situation. Even with this reduction in fees, you could save hundreds of dollars by using a money transfer specialist instead.
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