Did you ever ask yourself how banks can make such an insane amount of money? Well, that’s a long story, but one reason is that every time when you transfer funds internationally, you will pay a fee. Sometimes it’s a percentage, sometimes a fixed amount, and sometimes the fee is hidden in another item, for example in an exchange rate. But in one way or another, you pay, that’s for sure.
On the first glimpse, these fees seem to be small, but they can add up quickly. If you transfer money internationally on a regular base, for example because you are a global freelancer, it can happen quickly that you’re paying more than $1,000 per year, only to make transactions.
However, there is no need to pay the bank, you can also use one of various other electronic payment providers. The following article will give an overview of different methods to transfer money internationally and provide some hints how you can save money.
Banks offer a wide range of international payment services, but don’t expect them to be cheap!
The most common way to transfer money is via a bank transfer. Usually, banks can give you access to a wide range of payment services. The easiest way is to transfer money from one account to another, within the same bank. In most cases, that service is for free, unless you need to exchange the currency.
However, how often does it actually happen that the person you interact with uses the same bank? Right, not too often. In this case, banks offer wire transfers to another bank, country or state. That, however, is not for free. Fees vary depending on the bank, but they can be as high as $45 or even higher.
If you wonder why it’s cheaper to transfer money in foreign currencies, look at the exchange rate. That’s where the banks make money. Don’t think they’ll give you anything for free. Your banker is not your friend after all.
Transfer money internationally through gold
BitGold is a service that offers an alternative to the conventional money transfer online. Actually, I have just discovered this one recently and it’s quite amazing.
Compared to companies like PayPal, BitGold offers an innovative and fundamentally different approach. If you open a BitGold account, you can buy gold online. Hence, your money is stored in secure vaults in the jurisdiction you choose.
When you load money on your account (that means you are buying gold), you will have to pay a 1% transaction fee. To redeem, the recipient pays another 1% transaction fee. Hence, the entire cost of your transfer is just 2%. That’s quite good for a global wealth transfer.
Another great thing here is that unlike any other payment provider, they cannot rip you off with the exchange rate; because there simply is no such thing as an exchange rate. Honestly, I enjoy it if I don’t have to watch out for hidden fees and other traps. That saves me a lot of headaches.
PayPal is the most common electronic payment provider worldwide, but watch out for their hidden fees!
The most popular electronic payment provider is PayPal. Well, maybe not the most popular one, but the most common. In fact, many of PayPal’s clients are not happy with the service, but very often they don’t have another choice.
On the first glimpse, PayPal’s fees seem to be quite reasonable. The recipient is charged about 2.9% plus a cross border fee for international payments. Compared to banks’ fees, that seems to be fair.
The problem starts when you transfer funds in a foreign currency because PayPal hides an additional fee in their exchange rate. Depending on the currency, this fee can make up more than 2% of the total transaction value; which you have to pay in addition to the other fees. If you transfer a bigger amount, that will be quite a lot of money.
Moreover, if you receive a foreign currency transfer to your account, you have to withdraw the funds in your currency. Let’s say your PayPal account is in Euro and you get a payment made in USD. As you can only withdraw Euro, you are forced to pay the exchange rate. Bummer!
In the end, choosing the right payment provider can save you a lot of money and trouble. Take some time to calculate your actual transfer costs on a yearly basis. You will be surprised how much you actually pay. Then compare your options, I bet you can find a better alternative. Give it a try and share your experience.
Sustainable Personal Finance says
I have a post on how Canadians can save on f/x when using Paypal:
No need to pay almost 3% to convert foreign currency to CAD!