Among the plethora of options available to send money overseas, the best method is an individual choice that meets the sender’s criteria. Some people may prioritise speed, while others are more interested in the security of the transaction, the total cost of the process, or the convenience factor.
Here, I have identified the methods of transferring money that beat out the rest, according to two of the most important factors: cost and safety.
Transfer fees and exchange rates are the two primary costs involved in sending money overseas. These costs vary considerably based upon which transfer service is used and how much money is sent, so it pays to choose the right service for your specific needs and budget.
Sending small amounts abroad (less than $500)
If you are a parent of adult kids, you might need to send a small amount of cash overseas to help one of your children who has run low on funds while travelling. Or if you have family or friends overseas, you might decide to send money as a birthday or Christmas gift. In these instances, the last thing you would want is to be slugged with fees that are disproportionate to the modest amount of cash you want to move.
When looking to send small funds, look first at the fixed fee being charged. The exchange rate markup, which plays a bigger role on large-sum overseas transfers, becomes negligible.
Banks are normally one of the least cost-effective money transfer options, as they charge upwards of $10 per transfer. Some charge $20. If you are sending just $100 abroad, that’s a 20 per cent fee right off the bat (before factoring the exchange rate markup).
Let’s look at another example. If you are sending $250, and one transfer service charges a flat fee of $25 and another charges 3 per cent of the amount sent, the most cost-effective option would be the latter, as the charged would be just $7.50. Conversely, the larger the sum transferred, the more the flat-fee merchants become the most cost-effective option. If you were sending $2000, the service charging the percentage would then be more expensive (at $60) than the service charging a $25 flat fee.
There are convenient options available beyond money transfer services. PayPal can be used to get funds to the recipient almost instantly, simply by logging into your PayPal account and organising the payment online. However, the recipient must also have a PayPal account to be able to access the funds. Alas, there is a price to pay for this convenience. While PayPal offers low fixed foreign transfer fees (usually less than $1 per transaction, which is deducted from the amount transferred), it charges high margins on exchange rates. Typically, PayPal’s exchange rate conversion fees are 3-4 per cent above the market exchange rate. Factor in other fees levied by PayPal like the cost of depositing back to your back, and the net amount received via PayPal could be 5-10% lower than the amount sent. It should also be noted that PayPal has strong payment protection guarantees (for business transactions), so if anything goes wrong, you should not end up out of pocket.
The best way to transfer small amounts abroad from Australia is through OFX, a Sydney-based money transfer provider which does not charge any fixed fees per transfer. The cost to send $300 from Australia would be only about $3 (depending on currencies exchanged).
For transfers of $500-5000
Expanding distribution networks and global partnerships have led to the emergence of a plethora of digital-first services that help users avoid percentage-per-amount fees and keep costs low when sending larger sums overseas, largely due to low overheads compared with the banks.
There are other barriers to using banks. In most cases, you must be an existing customer with the bank to use their international money transfer services. Secondly, their processing times are almost always slower than specialist money transfer providers, which means your recipient can be waiting up to a week to access the funds, compared with a day or two with the specialist services. This obviously has implications if emergency money is being sent to the recipient, leaving them with no other means to obtain funds.
Online money transfer services such as Wise charge a fixed, low fee on all transfers. It is transparent, easy and cheap and it is likely the cheapest option for sending $5000 overseas. It’s also much easier to set up your Wise account online than register a bank account in Australia.
While services such as Wise are appealing, they require users to self-manage the process. This means it is the responsibility of the sender to research the best deals, navigate fluctuating foreign exchange rates and facilitate a secure exchange.
Sending sums greater than $5000
Transferring large amounts of money abroad from Australia gets a little more complicated. Most Australians would still use their banks for such payments, but banks not only charge a significantly high per-transfer fee, they also offer a poor exchange rate, in comparison with Australia’s money transfer services. Based on a fee comparison between foreign exchange specialists and banks, if you transfer $10,000 to the UK, you’ll get between 2 and 4 per cent more for your money when using a specialist provider.
The best rated companies for transferring large amounts overseas are currency brokerages. They offer an online platform as well as the choice of making transfers via phone or email. They also offer a dedicated currency expert, if needed, to help with the transfer set up, negotiating a better rate, to advise on the optimal time for the transaction, and so on, if needed.
Declaring large sums for international transfers
In Australia, $10,000 is the maximum amount you can send overseas in a single transfer without having to declare it. Some banks and transfer services set even lower limits. Your transaction history could also impact the amount that you are permitted to send.
Sums greater than $10,000 must be reported. This is designed to prevent incidences of money laundering and tax evasion. If you want to send funds overseas to buy a property, for example, you will be required to fill out documentation where you will need to include information such as your passport number, tax file number, reason for sending the money, the intended recipient, and the origin of the funds being transferred.
Sending large amounts of money via an app or online system can be daunting to some, but it needn’t be a barrier to doing so, as it is a fairly simple process to identify reputable firms through your own research or on comparison sites. The research is worthwhile, as while banks are often considered the first point of call for large transfers, currency brokers such as OFX can offer an even better deal.
Currency brokers are experts in foreign exchange rates and international payments. They specialise in buying and selling currencies on behalf of their customers, guiding them through the entire transfer process.
Ultimately, the best way to send any amount of money overseas is to use an online money transfer service. However, with so many options available, it’s important to research and compare services to secure the best deal for your circumstances, as well as to ensure you engage a reputable company that you are comfortable entrusting your funds with.
Alon is the Founder and Managing Director of Money Transfer Comparison, a global comparison website helping Australian businesses and individuals find the best rate in international money transfers to and from Australia.