For many of us, America just isn’t where it’s at these days. Yes, the economy is “the best it’s ever been,” with record low unemployment. However, unless you’re looking to work at Wal-Mart, McDonald’s, or at an Amazon warehouse, you might be out of luck.
Thankfully, you can find plenty of opportunities elsewhere. From working as an English teacher in Asia to filling tech vacancies in Australia, you can do better abroad.
However, life as an expat isn’t without its challenges. For one, you may have to move assets to your new home to avoid double taxation. This process can burn you if you aren’t careful, though – to the tune of THOUSANDS of dollars. While losses like that don’t seem justifiable, that’s the finance industry for you.
So, how can you move money to the other side of the globe as cheaply as possible? In today’s article, we’ll show you how to do it while protecting your hard-earned cash.
Transmitting Cash Around the World Is Not Free
It just doesn’t seem fair. Every single day, we send more than 293 BILLION e-mails. Unlike snail mail, every one of those messages don’t cost a DIME to send.
But, when it comes to your money? No such luck. Rather, the cost of sending cash internationally has frustrated everyone, from migrant workers to professionals. The former group struggles the most, as remittance firms can charge rates as high as 11% of the transfer amount. However, even the affluent pay bank fees and margins that can cost as much as 5% of their transfer.
For decades, banks (and a few complicit non-bank firms) had the foreign exchange market cornered. With no real competition, they charged whatever they wanted. A few money-savvy individuals complained, but in vain – where else could they turn?
Viva La Revolución: How the Internet Made Money Transfer Cheaper
In the 1990s, the World Wide Web burst onto the scene. At first, commentators dismissed it as a passing fad. However, as the world moved towards the 2000s, it became apparent – something big was happening.
By making it easy to share data, the internet was democratizing society. The Drudge Report, a late 90s blog, played a significant role in the movement to impeach Bill Clinton. Napster turned the music industry on its head. And, in 1998, a company by the name of PayPal sought to revolutionize banking.
Thankfully, for the sake of everyone suffering underneath the jackboot of the banks, they succeeded. With the concept of internet money transfer proved, other pioneering firms joined the party. OFX, Currencies Direct, and Moneycorp, who started serving offline business clients in the 90s, opened online trading desks.
At first, growth was slow. The internet was still a novel concept – as such, the idea of sending money across it scared many. It took the success of eBay, an online trading post, to change people’s perspectives. Powered by PayPal, it acclimatized a generation of consumers to the ease and speed of online money transfer.
However, it wasn’t until the 2010s that its growth became exponential.
Transferwise: The Birth of a Financial Juggernaut
At the start of that decade, Transferwise came on the scene. One day, Taavet Hinrikus and Kristo Käärmann were rubbing their backsides after moving cash through a bank.
Fortunately for us, this story has a happy ending. Incensed with losing HUNDREDS of pounds per transfer, they put their heads together and came up with a solution. Both had ties to Estonia – Taavet got paid by Skype, which was based in Tallinn, while Kristo had a mortgage there.
Rather than bend over for the banks, they paid each other according to the interbank rate. A short while later, they thought, “Why can’t we make this work for everyone else?”
As it happened, Taavet and Kristo had significant tech and finance experience. With complementary skills, they partnered up and founded Transferwise in 2011. Rather than charge hidden fees, they made the bold decision to go fully transparent. When you move money through Transferwise, you can click on a drop-down button that shows their work. In short, they have nothing to hide.
More importantly, they took their model of changing cash at the interbank rate and scaled it up. Rather than bilk consumers through obscene margins, they chose to make money via a nominal fee. Everyone from businesspeople to migrant workers got on board. By 2018, they were moving 4 billion USD per month.
As of 2020, Western Union is the only non-bank firm that moves more capital than Transferwise. Not bad for a company that’s been around for less than ten years!
How Much Can Online Money Transfer Save YOU?
Still skeptical about international money transfer? We salute you – a critical mind will get you far these days. It’s not enough to just say that something works – it’s on us to prove it. And prove it we shall.
Let’s say you need to move 30,000 USD to your new Australian bank account. Back in America, you do business with Bank of America (BoA). To their credit, they are upfront about their transaction fees. To move money abroad, BoA charges as much as $45.
Now, that doesn’t sound all that bad, especially when you’re moving massive quantities of money. However, as you may have already guessed, that isn’t where they make the bulk of their money. Instead, they make out like bandits on the exchange rate.
Let’s just say there’s a reason you can’t find these numbers online. BoA, like every other American retail bank, are tight-lipped about their foreign exchange rates. Generally speaking, you can expect to pay a margin of 2%-5%.
In isolation, that number sounds quite harmless. But, as the amount transferred increases, the pain inflicted adds up. So, let’s get into the math. AUD, or the Australian Dollar, is a reasonably significant world currency. Consequently, it’s safe to assume that BoA probably takes a margin of 3%.
At present, the USD/AUD interbank rate is 1.4790. So, the Bank of America USD/AUD rate is likely 1.4347, or something close to that number. You start the transfer paying 45 USD. Then, they convert 29,955 USD at 1.4347. Down Under, 42,976 AUD lands in your NatWest account.
But, what if you processed your capital move through Transferwise? It’s true they convert at the USD/AUD interbank rate – in this case, it’s 1.4791. To make money, they charge two fees – a small 5.34 USD wire fee, then a transaction fee of 0.47%. They change 29,859 USD at 1.4791, depositing 44,163 AUD in your Aussie account.
If you’re crunching the numbers, you’ll find that’s almost 1,200 AUD more! Not feeling Transferwise? There are many options available here at home. SendFX is an Australia based company, for instance. Whether you choose them or another provider, you’ve got to admit: when you’re moving your assets, saving THOUSANDS helps IMMENSELY.
The World of Finance Is a Jungle – Don’t Be Prey
Every day, banks make a killing at OUR expense. Check out their bottom lines, and you’ll see what we mean. In Europe, the Guardian revealed that foreign exchange revenues made up 10% of Santander’s profits.
In raw numbers, they netted 585 million EUR from foreign exchange customers in 2016 ALONE. While more people are becoming aware of alternatives every year, most allow their financial institution to rip them off.
Don’t be afraid – international money transfer firms are beholden to the same regulations as the banks are. Not only are they safe, but they are also cheaper, faster, and offer better customer service. Don’t let the banksters prey on your savings – shop for better options online and save!
