How do banks make money on international money transfers?
Banks make a lot of money on currency transfers, and it’s important to be crystal clear on the costs associated with what should be a simple and cheap process. Be wary of sending money internationally with the bank for three major reasons:
- Hidden Fees
Banks will never tell you explicitly the profit they build into the exchange rate when you transfer money internationally. It’s an implicit cost that can hit you in the pocket for up to 5% of the value of your transfer. Always, always compare the mid-market ‘official’ exchange rate side by side with your quoted rate. This difference is essentially how much you are paying to convert one currency for another. At CurrencyTransfer, we clearly display the difference, namely, the true cost of a money transfer.
- Transaction Fees
The average bank can charge fixed transfer costs of up to £40 GBP equivalent. The more transfers you do a year, the more transaction costs can start to rack up. Two transfers a month can cost close to £1000 a year! Unlike them, we don’t charge any transfer fees. We are 100% transparent and build all fees and charges into one exchange rate. Simple.
- Fixed Rates
Your bank sets the exchange rate once a day and does not update with the live mid-market rate. Furthermore, they don’t even tell you what the mid-market rate is! This can make the bank quite a bit of money as the rates fluctuate throughout the day, while costing you. On our end, we believe in complete transparency when it comes to the exchange rate. We always show you what the mid-market rate is alongside the rate you are paying so that you can exchange with the security of knowing you are getting the best possible rate.
There are many other reasons why it is better to use a specialist money transfer service. One such reason is banks do not give ‘mainstream customers’ any way to hedge their currency exposure. If you’re a growing business, you may want to hedge against volatility in the currency markets by booking a forward contract. Unless you have a special facility with the bank, you cannot do this and will need to settle on a basic spot transfer. Not so smart if you’re a tour operator, or an individual buying an overseas property with a designated budget to hit. Lastly, new age, low cost money transfer suppliers understand customers much better than banks. We like to think we have a slicker user interface, experience and above all, speak to you in layman’s terms. We try to ditch any fancy foreign exchange language.