In this post I will discuss and compare the options an expat or international nomad has at his/her disposal for transferring money across borders. As someone who just started living abroad or moving around, you may find things confusing and likely waste tens or hundreds of dollars on stupid bank fees and ripoff Forex rates. If you think that describe you, then this article is for you!
Just to clarify, what I mean by transferring money abroad or exchanging money abroad can refer to a couple of scenarios. For example, you come from Canada but are currently living in South Korea, you are still getting salary paid into your Canadian bank account in CAD, and you need to send money to yourself in Korea to pay for living expenses. This is transferring money abroad (across borders), to yourself. Alternatively, you can be living in Canada as an immigrant, and you need to send money you earned in Canada back to your home country of Nigeria to your family — this is another scenario. Also, maybe you are traveling the world and you need to have the most low-fee method of exchanging money in every new country you go to — I will cover this also. Basically these are transfers/exchanges that involve two different currencies.
In this post I will discuss several options available to the average expat or globetrotter. I will leave out the bitcoin/cryptocurrency option since it requires a bit more technical understanding and involves a bit more volatility. The options I discuss are:
- Bank Wire
- ATM Withdrawals
- Cash Exchange
- Wise (formerly TransferWise)
Bank wire or international wire transfer is the most common “old school” method for sending money from one country to another. Typically you would go to your bank and ask to send a wire transfer to a recipient in another country’s bank. You would supply your bank with the SWIFT code, account number, account holder name, etc. Your bank will charge you a hefty international wire fee, which typically ranges from $30-60 depending on the bank, and your transfer will go through after about 2-5 days. If your bank actually operates in a modern way, you might even be able to do the wire transfer in your online account — this really should be the norm now but you’d be surprised how many banks in developed countries still do not have this online option available.
International wire transfer through your bank is standard and reliable, but it is slow and the fee is ridiculously high considering the “service” provided. This is not to mention the “hidden charge” that you will suffer — banks do not give you the “Mid-Market Rate” (aka the market-traded Fx rate as seen on sites like XE.com). Rather, every bank will rip you off on foreign exchange rates, typically by 2-3%.
As an example:
- You send $1,000 USD from your American bank to your friend’s Canadian bank
- The Mid-Market Rate (let’s call it “fair rate”) is: $1.00 USD = $1.30 CAD (1.30)
- If the world was perfect, then your friend would receive $1,300 CAD
- However, since the world is not perfect and banks are a draconian institution that rips off customers, you will first pay $40 for the international wire fee
- On top of that, your bank will give you a Fx rate of 1.275 instead of 1.30
- So, what your friend ends up receiving is: $1,000 USD – $40 USD = $960 USD; $960 USD * 1.275 = $1,224 CAD
- This means the recipient gets $1,300 – $1,224 = $76 CAD less than what he/she should actually receive
- In terms of percentage, on this $1,000 USD bank wire transfer, you are losing: $76 / $1,300 * 100 = 5.85%
5.85% is a lot of money to give to people who do nothing more than balancing a couple of ledger entries in a computer.
If you are short on time and need to pull out cash in a foreign country, you have little choice but to use ATM withdrawals. Again, since ATMs involve the banks directly, you can be sure that you will get a bad Fx rate. On top of that, your bank typically charges you a fee of $5 or more for a foreign ATM withdrawal, depending on the bank. If you are unlucky (quite common in most places), the ATM machine you are using will also be charging you a withdraw fee, again typically ranging from $5-10.
Overall, using our previous example, if you are to withdrawal $1,000 USD worth of CAD from your US account while you had just landed at Pearson Airport in Toronto, you are looking at:
- Fx rate of 1.275 instead of 1.30: $1,000 USD * 1.275 = $1,275 CAD
- ATM fee of $5 CAD: $1,275 CAD – $5 CAD = $1,270 CAD actual amount received
- Your bank charge of $5 USD for using a foreign ATM: $1,000 USD + $5 USD = $1,005 USD actual cost
- Your actual rate = $1,270 CAD / $1,005 USD = 1.26, which is 4% less than the actual fair rate of 1.30
For this ATM withdrawal example, you are sacrificing about 4% of your money to fees. Looks better than using a bank wire transfer but of course the two options are catered towards different use cases. You can send money to someone else through bank wire but obviously you can only withdraw money for yourself by ATM, and the daily withdrawal amount is typically limited to a few hundred dollars depending on the country you are in. Of course, ATM withdrawals are not something we can always avoid — if you need cash immediately there is not much else you can do. That brings me to our next option.
A fee-minimal way to get foreign currency when you are traveling is to exchange cash directly — you will avoid the ATM fees and crappy bank Fx rates. Although, this method is highly variant depending on which country you are visiting.
If you are traveling in neighbouring developed countries (US & Canada), most European countries, etc. It’s often best to just go to your local bank and order foreign currency. The bank will usually give you quite decent rates, maybe a couple of % off the Mid-Market rate at worst.
However, if you are traveling to different continents or countries with small unique currencies (e.g. if you are traveling to China and need to get the CNY, or Thailand and need THB), then it’s better to bring a large global currency like the USD or EUR, and exchange locally. In most developing countries for example, the demand for USD is so strong that local exchange shops and bank exchange windows offer fantastic rates, usually less than 1% from the Mid-Market Rate. Don’t ever exchange at airport kiosks unless you absolutely need cash immediately upon your arrival — airport rates are typically worse by 4-5% and can be as ridiculous as 15% worse! No surprise, as they understand the game of supply & demand and know that if you are stuck then they are your only option.
Wise (ex. TransferWise)
We are now in the age of FinTech as people have begun to get tired of banks’ BS. Great FinTech products are exactly what globetrotters and expats need in this increasingly globalized and mobile world.
Wise is a FinTech company/online bank service that started several years ago, and now has millions of users. I started using Wise since 2017 (when it was still called “TransferWise”), and have continued using them to this day. Through my experience so far it is the best low-fee option for transferring money across borders, whether to yourself or someone else. Distributed teams can even use TransferWise for paying salaries to remote employees, etc. You can basically think of TransferWise as a cheaper and more transparent version of bank wire transfer.
Fees on TransferWise are very low, typically less than 1-1.5% after everything considered, including Fx rates. They give you the transparent Mid-Market Rate, and only charge a transfer fee because, after all, they also need to make money as a company.
For example, a while ago on one transfer I sent $1,650 CAD to a friend, and the friend received $1,250.12 USD. The Fx rate of USD/CAD that day was $1 USD = $1.31 CAD, or 1.31. The transfer fee charged by TransferWise was $13.29 CAD. Let’s do the math here:
- $1,650 CAD – $13.29 CAD = $1,636.71 CAD, this is the actual amount sent
- $1,636.71 CAD / $1,250.12 USD = 1.31, verified — this was exactly the Mid-Market Rate
- The total cost was only the transfer fee of $13.29 CAD (direct debit from my bank account), which comes out to: $13.29 CAD / $1,650 CAD = 0.81%
As you can see, the overall fee for doing this transfer using TransferWise was less than 1% of the total amount I sent. This is also almost 5% less than using a typical bank’s international wire transfer! This difference can be significant if you are sending larger amounts across borders.
Do note, however, that the rates differ depending on which currencies you are transferring between. For example when I transferred between Dollars and Chinese Yuan (CNY), the overall fee typically ends up being somewhere between 1-2%, which is still a lot lower than going through banks. The varying rates are due to different levels of administrative difficulty and liquidity for different currencies — for example more hurdles going between USD/CNY and smaller currencies than between USD/CAD or USD/EUR.
Wise currently supports some 50+ currencies, with limitations on certain smaller routes or depending on government restrictions, but the coverage is pretty good already. Give it a try, feel free to sign up through my referral link so that we both get a credit if you use it. It’s cheap, reliable, and transparent — truly a great service and hence such rapid success for the company.