If you thought monsters, goblins and ghosts were scary, have you ever transferred money overseas with your bank? Imagine losing up to 7.0% of your money to hidden fees and high exchange rate margins with no warning. Now THAT is terrifying.
Australians who use their bank to transfer money overseas often think that they are getting a good deal. But in actuality, banks are among the most expensive ways to make an international money transfer.
Here are some of the most common ‘tricks’ banks use to profit off of your overseas payment.
Trick 1: Confusing Marketing Language
“Fee-free transfer”, “No fees”, “Free International Money Transfers” are common marketing messages banks use when advertising their cross-border payment capabilities. This language implies that Australians who transfer money with them won’t be charged. This couldn’t be further from the truth.
International money transfers typically incur two sorts of fees: a transaction fee and an exchange rate margin. A transaction fee is usually a flat $ amount to cover the facilitation costs of the transfer. It can range anywhere from $5 - $35 depending on the bank. An exchange rate margin is a charge that banks bake into the exchange rate they offer to convert your money, say from AUD to GBP.
When banks advertise that their transfers are “fee-free”, they are usually referring to the first type of fee- the transaction fee. Although you might be spared the flat $ transaction fee, you are still being charged on the exchange rate. Banks’ marketing language cleverly emphasises the cost-savings of one fee while intentionally downplaying the other. But more on that below...
Trick 2: Undisclosed Fees
The second fee – the exchange rate margin – is the one that banks rarely disclose. This is intentional, since this is where the bulk of the cost is built into the transfer.
In the best case, banks will tell customers the exchange rate they are getting in advance of their transfer. In the worst case, Australians will never know the rate that was used to convert their money.
For people who don’t regularly monitor exchange rate markets, it is normal to trust that the exchange rate your bank is using is reflective of the true price to exchange AUD to another currency. But when banks present customers with a rate to convert one currency to another, it is nearly always inclusive of some mark-up or fee.
For example, the bank tells you that the rate to convert $1,000 AUD to GBP is 0.4700. That means that you will receive £470 for your A$1,000. What the bank doesn’t tell you is that they were able to convert your money in the foreign exchange market at an AUD/GBP rate of 0.5000, or £500. The bank is then pocketing the difference of £30, or A$60. That is a hefty 6.0% of your total transfer amount!
Trick 3: Charging for convenience
Banks know that for many Australians it is simply more convenient to use them to make international money transfers. The money is already sitting there, the bank has all your personal details, and you trust the security of your funds. Banks assume that customers don’t want to go through the hassle of setting up an account elsewhere, so they are free to charge more on international money transfers than other providers.
It’s true, switching to an alternative money transfer company requires a little extra work. But that little bit extra admin can save you hundreds of dollars in fees and exchange rate charges.
‘Treat’ Yourself to a Fair Overseas Money Transfer
The next time you need to send money to an overseas bank account, don’t let your bank trick you into overpaying. Instead, ‘treat’ yourself to transfer that is both fair and transparent.
FlashFX is a dedicated online money transfer company that lets you see the full cost of your transfer upfront, inclusive of ALL fees. We offer the same top-notch security of your bank at a more affordable cost. Plus, every transfer is completely trackable, so you know where your funds are every step of the way.