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If you’re planning on moving to a new country and need to move your savings over, you’re probably wondering about the best way to transfer money abroad.
While your first thought might be to use your bank for currency transfers, this can actually be a very expensive option, with either hefty fees or poor exchange rates.
When I moved Down Under back in 2015, I spent the first year or so travelling and needed to regularly transfer money to Australia from the UK. Since I’d just spent ten years working in finance, during which I qualified as a chartered accountant, I thankfully knew there were much better ways to transfer money abroad than using my trusty old bank.
After a lot of research and some truly fascinating spreadsheets, I decided that using online currency specialist TransferWise was the best way for me to send money overseas. And on the odd occasion I need to make a transfer now, they’re still my go-to choice.
So whether you’re moving to a new country and need to move a substantial sum, such as the proceeds of a house sale, or you’re simply going travelling and need a top-up every now and then, read on to find out how TransferWise works and why you should consider using them to transfer money abroad cheaply.
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Buy and Sell Rates vs the Mid-Market Rate
If you’ve ever used your local currency exchange service inside a bank or travel agency for example, you’ve probably noticed that each foreign currency available has two different rates advertised: a buy rate and a sell rate.
So if you were going on holiday to Australia from the UK, the trader would sell you dollars at the sell rate. But if you were returning from your holiday, the trader would buy your leftover dollars back at the buy rate, and you’d get back less than you would have paid for them on that day.
If you go onto Google, XE or Yahoo Finance however, and look up the exchange rate between two currencies, you’ll only be shown a single rate, which lies somewhere in between the buy and sell rates that currency traders offer.
This is what’s known as the mid-market rate, or inter-bank rate, as it’s the rate banks usually use when trading currency between themselves.
So even if a currency trader advertises that they charge no commission, which they often do, they’re simply making a profit by marking up the real exchange rates to buy and sell rates instead. The same goes when you’re transferring money abroad as well as changing cash.
Obviously the trader needs to make a profit, as they’re running a business, but the problem with charging no commission and hiding the fees inside exchange rates is that it’s unclear how much extra you’re actually paying them.
The TransferWise Story: Two Estonians Meet at a Party
The story of TransferWise began when two Estonian guys, Kristo and Taavet, met at a party whilst living in London.
It turned out that Taavet was being paid in Euros, but needed to pay his UK bills in British pounds. Kristo was being paid in pounds, but needed to pay his Estonian mortgage in Euros.
Both men were losing money every month by exchanging currency in opposite directions using buy and sell rates.
They realised that if Taavet transferred the Euros he earnt into Kristo’s Estonian account, and Kristo transferred the corresponding pounds he earnt into Taavet’s British account, they could simply both use the mid-market rate and save money!
They realised how many other people could save money by doing the same thing, and so the idea of TransferWise was born!
How TransferWise Works
TransferWise has bank accounts set up in over 50 countries. When I want to transfer money to Australia from the UK, I simply transfer the desired amount from my UK bank account to TransferWise’s UK bank account.
TransferWise then pays the corresponding amount, calculated using the mid-market exchange rate plus a small commission, into my Australian bank account from their own Australian bank account. So no international money transfer actually takes place.
The money I pay into their UK account will go towards funding payments to other people who want to transfer money from foreign currencies into British pounds. The money I receive in Australia will have been funded by people who want to change money from Australian dollars into other currencies, and have paid into TransferWise’s Australian bank account.
So it’s just like the Kristo and Taavet exchange but on a much larger scale, with over a billion dollars from over a million customers going in and out of TransferWise’s worldwide accounts every month!
The idea was so brilliant that the company was invested in by Richard Branson and the two founders of Paypal!
How Do I Get a TransferWise Quote?
One of the reasons I chose to use TransferWise is their transparency. Anyone can go onto their home page, plug in the currency they want and get an instant quote, with both the rate and the fee breakdown shown.
You’ll see they use the mid-market rates and add on a small, fully disclosed fee.
I’ve looked into many similar online currency specialists, but most of them require you to sign up with them before giving you a quote. I signed up with one, just wanting to see the rate and fee to plug into my thrilling comparison spreadsheet, and they wouldn’t stop ringing me and sending me emails!
How Do I Transfer Money Abroad with TransferWise?
TransferWise is really easy to use. Once you’ve set up an account, you just enter the amount and type of currency you want to change, and how you want to pay (you can pay by credit or debit card, but I usually choose to transfer the money from my UK bank account to theirs as the fee is slightly less).
You then enter the details of the bank account you want the foreign currency to be paid into (your own or someone else’s), and then continue to pay. If you’re paying by bank transfer like I do, they’ll give you the details of their TransferWise account in the corresponding country, so you can make the online transfer straight from your account.
Each time you log in, you’ll see a list of all the previous transactions you’ve made. You can click on any of these and choose to repeat the transfer, rather than start from scratch. The recipient’s bank details are stored, so you don’t have to keep plugging them in. They’ll give you an instant quote using the current exchange rate.
The money usually arrives by the next day (or the same day, depending on the time), so it’s really fast!
I hope that’s helped you understand how currency transfers work, so that you can avoid being overcharged! Just click the link below to get started with TransferWise.
If you’re backpacking Australia, learn more practical advice and how to budget your trip with these blog posts:
Enjoy your travels or big move abroad!