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Understanding Foreign Transfer Exchange Rates & Fees

#General #Transfers
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There are three cost components to foreign transfers:

  1. Exchange Rate Margins
  2. Provider Fees
  3. Bank Fees

Lets go through each of them to see where all your hard earned money is going…

Exchange Rate Margins

The inter-bank exchange rate is the mid-rate you see on the news each night and is only for reference, these rates are what it costs large banks and currency brokers to buy and sell foreign exchange.

Banks charge huge margins for currency conversion to the majority of businesses and individuals. They tend to fix rates once a day and therefore need to incorporate enough margin to protect against intraday rate volatility.

In addition, the level of price discrimination is extortionate – they get away with it because they can; businesses and consumers have been kept apathetic to using better alternatives.

Our foreign transfer cost calculator makes it easy to calculate how much you are actually being charged from the mid-rate. Each provider’s percentage margin is shown in the right column and optionally showing the total rate and fee margin or just the rate margin.

Using your Bank’s exchange rates services can be very expensive – often 5% to 6% worse than you can get by using a BER partner vendor.

Provider Fees

Foreign Exchange providers may also charge a fixed or percentage amount determined by the amount of the transfer. Some non-bank vendors will only charge these fees upto a certain limit or have various different fee structures. The calculator below is programmed with these various fee models to make it easy for you to find the best deal for your particular foreign exchange needs.

Next the dreaded Bank Fees.

Bank Fees and other annoying and unnecessary costs

Besides the currency conversion rate there are other fee components to making and receiving international payments, most of which are far from transparent to customers:

Correspondent bank fees : These relate to the network of banking relationships that are utilised to complete an international transfer. Each correspondent bank skims a fee of the transferred amount for simply acting as link in the payment chain. Customers are rarely made aware in advance as to how many correspondent banks are in the chain and what they will charge.

Landing fees : The beneficiary bank will charge a fee for receiving the funds from abroad. Again, these are rarely known in advance and can be substantial – there is no standardised fee. Customers are made aware of a “receiver fee” but not of its magnitude.

Repair charges : Banks will charge a considerable fee to fix an issue relating to incorrect details, such as the BIC code, having been entered as part of beneficiary details. This can be overcome by way of pre-confirmation of payment details, but banks do not usually offer such a service to customers.

Returned funds fees : If a payment needs to be returned, whether instigated actively by you,e.g. a stop payment, or due to insufficient funds or incorrect payment details, the bank will charge a fee to process the return. This can be upwards of $30.

Use a specialist money transfer provider next time you send money abroad

You can avoid getting terrible exchange rates and paying those unecessary bank fees by using one of the money transfer providers listed in the comparison table. These providers can do this by transferring the money internally or where needed using banks that they know won’t charge these unecessary fees.


Further Reading


Disruptors Challenging Australian Banks in Forex Price and Service: ACCC Report

Key Takeaways from the ACCC inquiry into currency conversion services. BestExchangeRates referenced among comparison sites playing an important role in customer awareness of the excessive currency margins charged by banks.

Last update: 1 Oct, 2019

AUD/GBP Between a Rock and a Hard Place – USD Strength


Both the Australian dollar and British pound sterling have had a hard time of late caught between the rock of the China/US trade war and the Brexit hard place.

Last update: 27 Aug, 2019

Facebook’s Libra Is Not the Game Changer That’s Being Promised

Enthusiasts would have us believe that Facebook’s own digital currency, Libra, will instantly revolutionize the remittance industry upon its release in 2020 — except it won’t. A harsher reality awaits, with conversion costs, capital gains taxes and a lack of Libra-priced goods all likely to limit its appeal.

Last update: 6 Jul, 2019


Posted to: General Transfers


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