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 = 1.3126 CAD. If you don’t have an account that gives you free wire transfers, you will have to pay a foreign wire transfer fee to your bank.
Wire Foreign Currency
Banks can wire in foreign currency. Fidelity quoted me a rate of 1 USD = 1.2680 CAD. That’s a 3.4% spread from the inter-bank rate but there is no wire transfer fee from Fidelity. The recipient’s bank can 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$12,665 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 = 1.2742 CAD at this time. If you wire US$10,000, the recipient will get C$12,663 after a typical $50 foreign wire transfer fee from your bank and C$15 incoming wire fee from the receiving bank. It’s about the same as sending a foreign currency wire from Fidelity.
Western Union Online FX
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. The rate I got after I registered was 1 USD = 1.2579 CAD. This rate was the worst so far.
Xoom is owned by PayPal. 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 slightly better at 1 USD= 1.2756 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$12,731. That’s better than using bank wires.
XE Money Transfer
XE Money Transfer is another international money transfer service. You wire money to XE or let them debit your bank account by ACH. XE then sends local currency to the receiving bank by electronic funds transfer.
XE Money Transfer doesn’t show the actual rate until you create an account. I have an account. The rate is 1 USD = 1.2866 CAD at this time. If you send US$10,000, the recipient will get C$12,866. That’s better still than Xoom.
OFX, formerly known as USForex, is operated by the Australian publicly traded company OzForex Group. It offers similar service as Xoom and XE Money Transfer. OFX can debit your bank account in the US by ACH before it sends money through a bank in the destination country.
OFX’s rate gets better as the size of the transfer increases. At this time for transferring US$10,000, the rate is 1 USD = 1.2946 CAD, which is better than XE Money Transfer’s rate.
OFX 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$12,946.
TransferWise is based in the UK and licensed in the U.S. It offers similar service as OFX. TransferWise debits your bank account in the US by ACH before it sends money through a bank in the destination country.
TranserWise says it uses the “real” inter-bank exchange rate with an explicit fee on top. This provides transparency. You also don’t need to register before you see the rate. At the same time I requested the rate quote, the rate from TransferWise after its fee was 1 USD = 1.3025 CAD, which is better than OFX’s rate. If you send US$10,000, the recipient will get C$13,025.
To recap, if you send US$10,000 to Canada, your recipient will receive vastly different amounts depending on which service you use:
|Western Union Online FX||12,579|
|Foreign currency wire||12,665|
|US dollar wire||12,663|
|XE Money Transfer||12,866|
Between the most expensive option and the least expensive option, we are looking at a difference of over $300 on a $10,000 transfer! If I need to transfer a large amount overseas, I would consider using TransferWise or OFX 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 is competitive in transferring to India in Indian Rupees.