When you send a small amount of money overseas, you don’t care as much about exchange rate. The fixed cost is more important. After all it doesn’t make sense to spend $25 on fees to send $100. I had to send $100 to Mexico a few years ago. I wrote about it in Sending a Small Amount of Money Overseas.
When you are sending a large amount of money to your own account or family or if the price tag of whatever you are paying for is stated in foreign currency, you should try to get the best exchange rate you can. A 1% difference in exchange rate on $10,000 is $100.
For this article I’m using as an example sending US$10,000 from the US to Canada and converting to Canadian dollars. As I’m writing this, the exchange rate on Yahoo! Finance is 1 USD = 1.0524 CAD. I’m also assuming you have an account that gives you free wire transfers.
Wire Foreign Currency
Banks can wire in foreign currency. Fidelity quoted me a rate of 1 USD = 1.018 CAD. That’s a 3.4% spread from the inter-bank rate. The recipient’s bank will also charge a fee for an incoming wire. For example Canada’s largest bank RBC Royal Bank charges C$15.00 . If you send US$10,000, the recipient will receive C$10,165 net.
Wire US Dollars
You can also wire US dollars and let the receiving bank convert into local currency. Using Royal Bank as an example again, its US dollar buy rate is 1 USD = 1.0195 CAD at this time. If you wire US$10,000, the recipient will get C$10,180 after a C$15 incoming wire fee. It’s barely better than sending a foreign currency wire from Fidelity.
Xoom is a money transfer service company, publicly traded on Nasdaq. It charges $4.99 for transfers up to $2,999. To send US$10,000, You will have to break it into 4 chunks of $2,495. The exchange rate is more favorable at 1 USD= 1.0274 CAD.
Because it transfers Canadian dollars locally within the country by electronic funds transfer, not wire, the receiving bank won’t charge an incoming wire fee. After paying the Xoom fees out of your US$10,000, the recipient will get C$10,254. That’s better than using bank wires.
XE Trade is another international money transfer service. The transfers are done through Custom House, which is owned by Western Union. You wire money to Custom House or let them debit your bank account by ACH. Custom House then sends local currency to the receiving bank by electronic funds transfer.
XE Trade doesn’t show the actual rate until you create an account. I have an account. The rate is 1 USD = 1.0337 CAD at this time. If you send US$10,000, the recipient will get C$10,337. That’s better still than Xoom.
Western Union Online FX
Speaking of Western Union, it offers a Western Union Online FX service for sending more than $3,000. It also doesn’t display the actual rate until you sign up for an account. I’m curious whether the rate is better than XE Trade’s rate when they are both done by the same company Custom House.
USForex is owned by an Australian company OzForex, which is majority-owned by Macquarie Bank in Australia. It offers similar service as Xoom and XE Trade. USForex can debit your bank account in the US by ACH before it sends money through a bank in the destination country.
Unlike XE Trade and Western Union Online FX, USForex shows the actual customer rate before you create an account. That’s great transparency. Its rate gets better as the size of the transfer increases. At this time for transferring US$10,000, the rate is 1 USD = 1.0401 CAD, which is better than XE Trade’s rate.
USForex doesn’t charge any fee on top of the exchange rate spread for transfers over $5,000 ($5 fee for under $5,000). If you send US$10,000, the recipient will get C$10,401.
[Update: CurrencyFair suspended service to US customers as of Jan. 1, 2014. No word yet when the service will resume. See CurrencyFair Suspends Foreign Exchange Service for US Customers.]
You wire money to CurrencyFair in the US; CurrencyFair delivers local currency in the destination country for $4. At this time the exchange rate at CurrencyFair is at 1 USD = 1.0480 CAD. If you send $10,000, the recipient will receive C$10,476 net. That’s the best of the bunch. It’s within 0.5% of the inter-bank rate on Yahoo! Finance.
To recap, we have these spreads off the inter-bank rate for transferring US$10,000 to Canada and converting to Canadian dollars:
|Method||Exchange Rate Spread|
|Foreign currency wire||3.4%|
|US dollar wire||3.3%|
|WU Online FX||?|
Between the most expensive option and the least expensive option, we are looking at a difference of $300 on a $10,000 transfer. If I need to transfer a large amount overseas, I would consider using CurrencyFair if it covers the currency I need.
Which service is the best also depends on the target currency. For example as I’m writing now Xoom and Western Union offer better rates in converting into Mexican Peso and Indian Rupee than XE Trade while CurrencyFair doesn’t offer service in either currency at all.
[Photo credit: Flickr user Mark Morgan Trinidad B]