Transferring money abroad: Is your bank ripping you off?
You can hop on a flight to Spain tomorrow for less than £100, but getting your money to a bank account there – to pay the mortgage on your holiday home, for example, or finance your child’s education – can be a pricey pursuit.
Research by Andrew Hagger of Moneycomms shows high street bank customers are paying far more – up to £53 on transactions of £1,100 – than they need to for international transfers.
Hagger explains: “Consumers simply don’t appreciate that there are cheaper alternatives available. They’re also confused by the combination of uncompetitive exchange rates and transaction fees levied by the banks.”
A quick look at the websites of the major banks reveals the average standard fee for transferring money abroad is £25 a pop.
But the costs don’t end there. Often banks will offer exchange rates above where the foreign exchange (FX) market is actually trading, allowing them to skim money off the top of your transfer in addition to collecting their fixed fee.
Taavet Hinrikus, founder and executive chairman of online money transfer service TransferWise and an expat himself, says it doesn’t have to be this way.
“In international currency exchange, banks have found an area where they can very easily add hidden fees. They’re milking money by taking advantage of their customers,” he says.
TransferWise, for its part, will transfer your money at the mid-market rate – the true rate you will find on Google, to which Hinrikus says banks often add three to five points – for a completely transparent fee of £1 for small transactions.
Transfers over £200 are subject to a clear pricing structure, and you are told at the earliest stages what the total cost breakdown will be.
With no complex online forms, SWIFT codes or PINsentry devices involved, TransferWise claims to offer a simple, easy to understand alternative to high street banks. It, and services like it, also make economic sense.
According to research by Moneycomms, getting €1,200 to an account in Spain on 18 February 2014 cost £999.25 through online specialist FairFX. Going through HSBC increased the cost to £1,020.02, while through Santander the transaction hit £1,039.74. While the differences may seem small, anyone with property overseas, family in other countries or jobs abroad could be paying these additional costs every month.
The head of HSBC’s FX department was unavailable to discuss how the bank determines exchange rates and fees, though a spokesperson did note that a new fee structure, which came in on 2 March, reduced fees to just £4. If you’re transferring funds to another HSBC account the transaction is now free.
Hinrikus, whose company celebrates its third birthday this month, says: “The banks are hiding the true cost of what they do. I’ve met many bankers over the last three years, and the first thing they always ask me is why we don’t charge more. The answer is that we don’t have to. We’re not greedy.”
While some banks do appear to offer reasonable exchange rates on mainstream currencies like dollars and euros, rates on lesser used currencies are far less competitive, according to Hagger.
Moneycomms found the cost of transferring 30,000 Czech koruna to the Czech Republic varied by as much as £44.65. While FairFX would complete the transaction for £911.16, at Barclays the bill came to £955.81.
As an American expat, I pay a $213.36 student loan bill every month that can only be paid out of a US bank account. Getting the money there today – 8 April 2014 – through Barclays would cost £133.04 plus a £25 fee; TransferWise will do the exact same transaction for £127.54 plus a £1 fee and a rate buffer deposit of £3.94, the unused portion of which I get back.
Exchange rates fluctuate constantly, but using TransferWise will save me approximately £354 this year.
Comparative costs of international transfers
|Provider||1,200Euros||1,500 US Dollars||30,000 Czech Koruna||5,000 Polish Zloty||1,500 Swiss Francs|
|Caxton FX||+ £4.09||+ £3.66||+ £4.59||+ £5.69||+ £5.24|
|HiFX||+ £10.67||+ £7.24||+ £8.86||+ £7.92||+ £8.10|
|MoneyCorp||+ £18.41||+ £16.24||+ £16.63||+ £19.37||+ £17.67|
|HSBC||+ £20.17||+ £24.49||+ £33.38||+ £35.59||+ £35.68|
|NatWest||+ £23.89||+ £19.52||+ £38.76||+ £36.34||+ £35.56|
|Post Office||+ £26.65||+ £22.12||+ £25.86||+ £27.17||+ £28.58|
|Halifax||+ £28.74||+ £26.12||+ £27.28||+ £28.95||+ £27.70|
|Lloyds||+ £29.24||+ £26.62||+ £27.78||+ £29.45||+ £28.20|
|Nationwide BS||+ £31.45||+ £31.45||+ £31.50||+ £33.51||+ £31.93|
|Barclays||+ £36.07||+ £44.69||+ £44.65||+ £47.82||+ £46.80|
|Western Union||+ £36.29||+ £6.48||+ £29.63||+ £36.76||+ £37.87|
|Santander||+ £40.49||+ £40.23||N/A||+ £43.70||
Research conduced by MoneyComms.co.uk on 18 February, 2014