We’ve always been a globally-minded nation. By the late 16th century, we had outgrown our island home. So, we set sail for far-away lands, claiming them in the name of the Crown.
Britannia may no longer rule the waves, but, in the 21st century, our lives have never been more internationalised. Many of us own holiday homes in places like France or Spain. We have family that live and work in dozens of nations abroad. Our children study at universities in Canada, the United States, Australia, and elsewhere.
As such, sending cash abroad has become a familiar errand. Because of this, we know when we’re getting a raw deal. As a result, the UK money transfer market is among the most competitive in the world.
If you don’t transfer cash often, though, you might not be aware of this. In today’s blog, we’ll expose how awful moving money through your bank is and how amazing the alternatives are.
It all starts with wire fees
Your financial institution starts fleecing you the second you initiate a transfer. Even if you’re only sending a small sum, the wire transfer fees they charge are often obnoxiously high.
Let’s say you have to send 300 AUD to your daughter, who needs books for her classes in Australia. Even for this amount, you’ll pay around 30 GBP to ship it through Natwest. Through some banks, that charge can be as high as 40 GBP.
As of the writing of this article, 300 AUD is roughly equivalent to 155 GBP. That means Natwest charges wire fees that amount to 19.3% of your send amount. For other banks, their cost can easily amount to more than 25% of your transfer.
To be clear, banks do have to pay fees levied by other brokers. They also have buildings to maintain and employees to compensate. However, they facilitate untold THOUSANDS of transfers every single day. When all is said and done, they’re making a killing.
Are you outraged yet? We’re not done – wait until you hear about the exchange rates they charge.
Margins: Where the banks really make their money
What if we told you that the bank’s rate isn’t the REAL rate of exchange? Even if you instinctively realised this, it’s so much WORSE than you think. On average, banks work a margin of up to 4% to 5% into their rates. After charging that price, they move your cash abroad at the interbank, or wholesale rate of exchange.
On the surface, 4%-5% seems quite small. But, as you scale up the transfer amount, your losses will become increasingly outrageous. To illustrate this, let’s assume you’re about to buy a holiday home on the Costa del Sol. To cover the down payment + closing costs, you’ll need to transfer 25,000 EUR.
You bank through Natwest, so you set up the transfer with them. They offer a GBP/EUR rate of 1.1563 – together with their 30 GBP wire transfer fee, you’ll have to pay 21,651 GBP. Sounds reasonable, right?
Hold up – let’s pretend that, for a second, you could move money at the interbank rate. At the time we wrote this blog, the REAL GBP/EUR rate was 1.1855. Since this transfer is rather significant, their margin is “only” 2.5%.
But, in real terms, you’re still paying FAR too much. If you moved 25,000 EUR at the interbank rate (1.1855), sans fees, you would only have to pay 21,089 GBP. Here’s a question for you – is it fair for a banker to charge 600 GBP to move your money? We thought not.
And yet, every day, average Britons approve transactions like this. They do so because they think their financial institution has their best interests at heart.
By now, we hope you know better. Banks are profit-seeking entities, whose only job is to maximise profits for their shareholders. If you want a fair deal, you’ll have to look elsewhere.
Online money transfer savings don’t feel REAL (but they are)
Not long ago, the banks (and a few non-bank firms) had the money transfer market cornered. Then, fintech startups like Transferwise violently disrupted the niche.
Today, you can find online money transfer deals that almost seem too GOOD to be TRUE. However, in this case, they’re legit. Thanks to the greedy margins of the banks, there’s plenty of money to be made offering HUGE discounts.
Let’s revisit the transfer of 300 AUD to your uni-attending daughter in Australia. Through Natwest, this shipment would have opened with a fee of 30 GBP – once again, absolute lunacy. Then, they offered a GBP/AUD rate of 1.8797. To end up with 300 AUD sent, you’d have to pay 190 GBP, wire transfer fee included.
Now, let’s contrast that experience with Transferwise. Unlike the banks, this money transfer service charges the interbank rate. As such, their GBP/AUD is 1.9177, or about 2% better. Because of this, you’ll only have to send 157 GBP.
To make money, Transferwise charges a nominal fee on transfers. In this case, they charge 85p or 0.54% of the send amount.
So, to review – Natwest charges 30 GBP up front, or 18.75% of the pre-fee send amount. Transferwise, a measly 85p on 157 GBP, or 0.54%. Natwest charges an exchange rate of nearly 2% off interbank, whilst Transferwise offers the interbank rate.
Now, do you understand why the online money transfer industry is blowing up?
Online money transfer is quick, easy, and SAFE!
At a minimum, many of us have experience moving money to/from the EU. From buying holiday cash to purchasing holiday homes, we’re a nation familiar with money transfer.
Then, why are some hesitant to make the switch to online money transfer providers? Fear of scams is one of the most substantial obstacles. Whilst most commerce on the internet is legitimate, fraudulent actors get nearly all the publicity.
You might not read many articles touting the successes of money transfer firms. However, every day, they save average people like yourself hundreds or even THOUSANDS on cash transfers. These transactions are easy to set up and often take less than 24 hours to settle.
Most importantly, virtually all online money transfers go through as intended. When problems arise, their customer service departments, which put the banks to shame, guide customers through the process.
Resolve in 2020 to try a small test transaction with an online money transfer firm. Once you do, we’re confident you won’t ever go back.
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