There are two parts to the cost of transferring money overseas:
- The exchange rate offered between Australian dollars and the currency you wish to buy. This is the most important factor to compare, especially if your transfer is a large one over $5,000.
- Any fees which may be charged to carry out the transfer. There are a couple of ways that fees are charged, and the size of your transfer will determine which one will be the cheapest transfer option for you.
Exchange rates
International currencies are traded 24/7 around the world at several major foreign exchange (FX) centres. The value of one Australian dollar constantly changes compared to other currencies. How much you get for your one dollar is known as the exchange rate. Even small differences in the exchange rate can mean the difference of hundreds or even thousands of dollars for your money transfer (depending on its size) which is why it’s important to compare providers with Savvy.
As there are buy and sell prices for currencies, the rate you should concentrate on is known as the mid-market rate, which is halfway between the buy and sell price. The closer the exchange rate you’re offered is to the mid-market rate, the better the deal is for you.
Some international money transfer services (and banks too) make their money by adding a margin to the exchange rate they offer. This is known as a mark-up. The bigger the mark-up charged, the more the transfer will cost you, so you should keep a clear eye on this when comparing your options.
Fees
Fees to transfer money internationally are either charged as a flat fee (for example, OFX offers $15 per transfer) or as a percentage of the transfer you wish to make (from 0.4% to 0.5% of the transfer value). If a flat fee is charged, the exchange rate you’ll be offered will often be close to, or right on, the mid-market exchange rate; in other words, there may not be much of a mark-up on the exchange rate you’re offered. A percentage transfer fee will vary according to the provider you choose, the amount you wish to transfer and the destination you wish to send money to.
Some companies (such as Remitly) also offer fee-free transfers, either for a transfer over a set amount (such as $10,000), as an incentive to attract new customers or simply because they make their money on exchange rate mark-ups. Knowing which method of charging a company uses can be useful when comparing transfer providers. It’s always worth checking the exchange rate offered with fee-free deals to make sure you’re being offered the cheapest possible international transfer deal.
Which is best: a flat fee or a percentage fee?
This will depend on how much you’re wanting to transfer to another country. In general terms, flat fees are better for larger transfers over $5,000, as charging a percentage of this amount is likely to be much more expensive. However, percentage fees work best for small transfers. For instance, a $100 transfer with a 0.5% fee would only cost $0.50 compared to a flat fee of $10 or more.
