Hidden fees, delays and double charges. Sound like the story of your last overseas money transfer? Unexpected fees and a laughably bad exchange rate could cost you hundreds of dollars along the way – especially if the big banks are involved.

Vanishing currency

Many of us find funds mysteriously shrink en route to other countries during trips overseas. And those who do lose out are generally unhappy with the way banks handle international transfers. So if you plan to go hell for (designer) leather in Milan, you may be hunting down cheap eats and a hotel downgrade instead after checking that bank account balance.

Here's just one example: CHOICE member Trish R was stung with a $30 sending fee, terrible exchange rate and $50 receiving fee on the other end of an overseas funds transfer.

Our tip: Look at alternatives to the big banks when you need to transfer cash overseas.

So what's available?

The good news is there are options. Australia has three main players:

These 'non-bank' services are better by a long shot, but:

  • you'll need to open an account and verify your identity
  • they all charge a fee for transfers under a certain amount
  • each service has a minimum amount of cash you have to send.

If you regularly send money overseas, hooking up with an alternative provider can save hundreds per year. But how much you save depends on how much you send.

What do they offer?

We checked out the three players above, using the same money transfer scenario in the same time frame (since exchange rates are in constant flux). All offer a similar exchange rate saving compared with the banks.

But the deal you get depends on:

  • the size of the transaction
  • the currency involved
  • the exchange rate
  • if you're a regular customer.

What about middleman fees?

Even if you're using a non-bank provider, banks still take a cut in the process. Their fees vary depending on the bank and transfer scenario. The non-bank services admit that they can't control these fees.

The banks tell the same story in their disclaimers. CBA charges $30 for sending a transfer, but says "we are unable to control how the payment will be processed by other banks and therefore make no guarantee that intermediary and receiving banks will not deduce additional fees and charges". ANZ and NAB have similar disclaimers.

Non-bank services also charge fees for smaller transfers, but these are modest compared to the banks.

Use the right calculator

Banks and non-bank services provide conversion rate calculators on their websites, but it pays to know what you're actually looking at. It's not always clear if you're seeing the inter-bank rate that applies to the banking industry or the customer exchange rate that applies to your transfer.

The interbank rate shows a better deal on the exchange, but you won't be getting this rate on a personal transfer.

We found:

  • ANZ, Westpac, CBA and NAB calculators use customer exchange rates rather than the inter-bank rate.
  • OzForex's home page calculator uses the inter-bank rate, but there is a "customer rates" tab on the home page that will reveal what you're really going to get.
  • World First's calculator points out that it uses the inter-bank rate, but it doesn't have a customer rate calculator at all.
  • CurrencyFair's home-page calculator uses customer rates as the default option.

Our tip: make sure you're looking at a 'customer rates' calculator, not the inter-bank rate.

What about PayPal?

PayPal can be a reliable and secure way to beat bank fees, but there are better services available if you're sending more than $200.

Some things to keep in mind about PayPal:

  • It charges a percentage of the amount sent.
  • It allows you to see the final rate before agreeing to the deal, but uses the inter-bank rate on its website calculator.
  • For the US or Canadian dollar, it adds a 4.5% margin on top of the inter-bank rate. They add a whopping 5% for other currencies.

The bottom line

The big four banks' rates and margins are subject to "change without notice", so the rate you end up with may not be the red hot one you expected.

Non-bank transfer services offer a level of transparency that's lacking in the banking world. You'll always know the exchange rate before finalising, which means no nasty surprises at the end of the deal.