When I make a money transfer, what should I look for in transfer fees and rates?  

Whether you send money online, or via an agent, the chances are you’ll be looking for the most cost-effective option each time. Of course, other factors need to be considered, such as speed of transaction and security.

Understanding how the process works is important to ensure you get the right deal when considering international money transfers.

To get the best deal, you should always look out for two things:

• Exchange Rates
• Fees

How do Exchange Rates impact my money transfer?

An Exchange Rate states how much your country’s currency is worth or will buy in another foreign currency.

For people in Great Britain, the Exchange Rate will tell you how much your Pound Sterling is worth when converted to US Dollars, Euros or any other world currency.

Many factors will influence a currency’s Exchange Rate – including political, social and economic factors.

Money transfer companies like Small World set their own Exchange Rates, giving customers the chance to shop around for the best rate.

Am I looking for a high or low Exchange Rate?

As the sender, you are looking for a higher rate, meaning you get more foreign currency for your money.

Most of these rates are continually changing, so it’s always worth checking to ensure you know the rate at the moment you transfer money. At Small World, we constantly check our rates against competitors and banks to give our customers the best rates possible.

What do I need to know about Transfer Fees?

Another factor to compare carefully are transfer fees.

These can either be a set amount (fixed fee), or a percentage, ranging from anywhere from 0.5% to 3.9%. As with banks (see below) there are money transfer companies who promote themselves as being “fee free”. In order to this their Exchange Rates tend to be lower.

So, don’t always go for the fee-free option, or the lowest fees, think about the Exchange Rate as well.

Some companies will also charge the recipient for receiving their payment. If you are paying a fixed fee every time you send money, it’s worth considering making a smaller amount of larger transfers rather than several of a lower amount.

Which is more important, Exchange Rates or Transfer Fees?

You might think that the company offering the best Exchange Rate is the one to go with, no matter what the fees are. Or, you might think that lowest fees are the way forward, irrespective of the Exchange Rate.

In fact, you always need to consider both factors together.

Here is an example:

Someone has a maximum of £1,000 and wants to send money to Bangladesh, for example, to be converted into the local currency, BDT.

• Option 1: Fixed Fee Transfers

The first money transfer company offers:

Exchange Rate from GBP to BDT = 105.26

Transfer fee = £10

This means that £10 of the budget would be spent on the transfer fee and £990 would be converted to BDT using the Exchange Rate.

Recipient receives = 104,207 BDT

• Option 2: Fee Free
  

Transfers The second company offers:

Exchange Rate from GBP to BDT = 103.491

Transfer fee = no transfer fee

This means the entire £1000 budget will be converted to BDT as there is no fee to pay. Recipient receives = 103,491 BDT

• Option 3: % Fee Transfers

Finally, the third money transfer company offers:

Exchange Rate from GBP to BDT = 106.52 Transfer fee = 2.5% or £25

This means that £25 of the budget would be spent on the transfer fee and £975 would be converted to BDT.

Recipient receives = 103,857 BDT

Therefore, in this case, Option 1 A Fixed Fee Transfer is the best deal, resulting in the most money being received.

Even though option 2 does not have any additional fees and option 3 has a better Exchange Rate, they don’t offer the best value for money.

This is why you must look at both the Exchange Rate and fee.

How do banks compare to money transfer providers?

As with money transfer companies, many banks charge a transaction fee every time you send money internationally.

There are also some banks that claim to be commission free, meaning there are no upfront fees. Banks that don’t charge fees will often adjust their Exchange Rates unfavorably as a result.

You can find further about how to get a better deal than the banks when transferring money online on the Small World website.

Money transfer is big business.According the World Bank, 2019 saw remittances to low- and middle-income countries overtake foreign direct investments. Even with the Covid-19 pandemic impacting the sector, money transfer remains a crucial way to support friends, family and communities overseas.

However, to ensure your money goes as far as it possibly can, understand the role that both Exchange Rates and Transfer Fees play and make sure you consider all your options at the point you make the transfer.