Need to know
- The new breed of money transfer services are always a better option than a bank
- With exchange rates especially, banks really take you for a ride
- Depending on the size of the transfer, you could save hundreds with a transfer service
A laughable exchange rate, hidden fees, delays and double charges – sound like your last overseas money transfer?
Banks can and will siphon off hundreds of dollars as your money makes its way to a foreign land. It's a bit of a racket, really.
Where did my money go?
Many of us have found that funds can mysteriously shrink while en route to other countries, mainly through a combination of unanticipated fees and miserly exchange rates, especially the latter.
CHOICE member Trish R, for example, was stung with a $30 sending fee, wore a terrible exchange rate, and then got hit with a $50 receiving fee on the other end of her overseas funds transfer.
The amount she sent overseas bore only a passing resemblance to the amount that came through on the other end.
That's because she sent her money through a bank rather than an online money transfer service – never a good idea. (Trish knows better now.)
CHOICE Tip: Go with an online-based money transfer service when you need to send money overseas or have it sent here. These disrupters have really improved consumer outcomes when it comes to foreign exchange.
Executing a simulated trade
There are a lot of players in the overseas money transfers game, and there are too many variables at play to pick a best one for every circumstance.
The main problem if you're new to the market is that it's impossible to see the exact deal you'll get unless you've signed up to a service.
When you're a member, you'll see the final deal on offer before you commit to it.
But services such as OFX, World First, Currency Fair, XE and others will let you execute a simulated trade of Australian currency for another currency using mid-market rates (also known as interbank rates).
Most make it clear that these are indicative rates only. The rate you'll actually get if you sign up to the service – the customer rate – will probably not be as favourable, since the services make money by adding a margin to the mid-market rate.
Indicative rates a good guideline
The rates you see as a non-member are generally only indicators, but they do indicate one thing quite clearly: you'll get a much better deal through one of these non-bank services than you will through a traditional bank, especially one of the big four (Commonwealth Bank, Westpac, ANZ and NAB).
The majority of money remitters reviewed by the ACCC are now giving consumers the tools they need to easily compare the total price of international money transfersACCC
A recent review by the Australian Competition and Consumer Commission (ACCC) found that 12 of the 15 major money transfer services are adhering to best practice when it comes to the accuracy of simulated transfers on their websites and fee disclosure prior to a transaction. It's a marked improvement on the ACCC's June 2020 assessment of the industry, which found that many services fell short of best practice.
"The majority of money remitters reviewed by the ACCC are now giving consumers the tools they need to easily compare the total price of international money transfers," the agency said in mid-August 2021.
A 2019 ACCC report found that consumers who used one of the big four banks to send international transfers of US dollars or UK pounds in 2017–18 could have collectively saved about A$150 million if they'd used a non-bank transfer service instead.
Exchange rates are constantly on the move. Unlike the banks, money transfer services let you lock in a rate before agreeing to the transaction.
Which is the best money transfer service?
CHOICE tracked indicative rates provided by money transfer services as well as the big four banks over five business days using the scenario of sending $10,000 to the US.
Though the sum of US dollars the recipient would have ended up with on the other end was only an estimate, it made it clear that most money transfer services offer much better deals than the big four banks – up to hundreds of dollars better in some cases.
Most money transfer services offer much better deals than the big four banks
In our $10,000 test, some of the newer arrivals to the marketplace – OFX, World First, Currency Fair, XE and WISE – did better than longstanding non-bank transfer services such as Travelex, Western Union and Moneygram.
The difference between the best and worst performers among the five was USD$36.
Many factors at play
Meanwhile, the median difference between these five (OFX, World First, Currency Fair, XE, and WISE) over the five-day test and other non-bank services (Travelex, Western Union, Moneygram) was USD$161.
Then there's PayPal, which only beat three of the big four banks. Tip: Avoid PayPal for sending money overseas.
The small difference between the best and the worst of OFX, World First, Currency Fair, WISE and XE is not necessarily enough to pick a winner among the five based on exchange rates alone, since the functionality of their online trading platforms and customer service are also things to consider.
Plus, exchange rates change all the time, and a service offering better rates one week may be outdone by another service the following week.
Among other things, the deal you get will depend on:
- the size of the transaction
- the currency involved
- the exchange rate offered on the day
- how much the sending and receiving banks charge
- whether you're a regular customer, since some services offer loyalty discounts.
Banks are never a good option for sending money overseas – or having it sent to Australia.
Banks lose by hundreds
The real story is how much better these five money transfer services did than the three big banks we included: CBA, ANZ, NAB and Westpac.
The median difference between OFX, World First, Currency Fair, WISE and XE, and the big four banks over the five-day period was $308, with the money transfer services coming out on top.
Ultimately, which one's the best will depend on a number of variables.
One is how much the sending and receiving banks will charge for the transfer and how long they'll take to process it. This is out of the money transfer service's hands and will likely vary with each combination of transfer service and intermediary bank.
There's also variation among the services. Some charge a fee for transfers under a certain amount, and most have a minimum or maximum send amount.
Flat vs percentage-based fees
Most of the money transfer services we tested charge a flat fee for transfers under a certain amount.
But others charge fees based on a percentage of the amount transferred, such as Wise.
CHOICE Tip: Make sure you take fees into account when comparing transfer services.
Non-bank money transfer services: The basics
- To open an account, you'll need to provide identification to verify your identity in line with financial services regulations.
- Like any other online service, you'll need a user name and password.
- Generally, you'll be wiring funds from your bank to the transfer service and providing it with bank details for the recipient. The transfer service will then wire funds per those details. But there are generally other options for how you send the money to the transfer service and where the service then sends that money.
Looking for the best possible deal? Join more than one service
If you transfer money overseas often and are keen on getting the best rate on every transfer, you could join a number of money transfer services and pit them against each other every time you transfer money.
You'll be able to check the rate you're actually going to get as a registered user before committing to the deal.