Loyalty comes at a price – avoid international money transfer rip-offs
Last week the Australian Competition and Consumer Commission (ACCC) released a damning report into how the big banks are gouging consumers of international money transfers. The biggest rip-offs have been via high fees and un-competitive exchange rates often hidden from the consumer. The strongest message in the report was that consumers should always shop around for the best deals possible, rather than simply use their bank for international money transfers.
The ACCC report found that individual consumers sending US dollars and British pounds in 2017 and 2018 could have collectively saved around $150 million. All they had to do was use the lowest-priced alternative suppliers instead of the big four banks.
This is a timely reminder for Kiwis serviced by the same four banks in New Zealand. It is really important to compare a number of factors when using international money transfer services. The three main criteria to keep in mind are the transaction fees, the currency exchange rate and the time it takes to transfer your funds.
What to look out for: Transaction fees
If you compare the best deals on international money transfer services here, you will see that transaction fees can vary widely. Using a default amount of $1,000 NZD to send to AUD, the fees you pay will range from ‘nil’ to as high as over $10. Similar fees can be as high as $40 when using banks, depending on which bank you use.
This difference will vary depending on which currency combination you use, but clearly the range can be wide. Remember, the larger the amount you transfer the wider will be the range of transaction fees between providers. Typically, the fees you pay to an online provider will be cheaper than the one you pay at the bank.
What to look out for: Currency exchange rates
Exchange rates have a significant impact on the final amount you receive in the foreign currency. At any point in time there is a range of currency exchange rates between NZD and other currencies. There is also a difference in rates between what individual consumers receive and what institutions receive. Invariably, the rates are less favourable for individual consumers. Banks typically charge rates closer to the higher end of the range. Online alternatives charge the middle of the range rates. This makes the online alternatives immediately more appealing.
For instance, as of 11 am on 3 Sep 2019 you could spend NZ$101 to buy AU$100 via an online services. At the same time, banks on average where charging an average of NZD106. That’s $5 on every AU$100 you exchange.
From the above two points it’s obvious that there is a combination of factors you need to be aware of before making a decision on which international money transfer service provider to use.
Shop around for the best deals
An additional challenge is highlighted in the ACCC report. There is a lack of transparency when it comes to how banks charge consumers for the service. The report went to the length of stating how often bank’s claims around ‘no fees’ are misleading consumers. The ‘no fees’ carrot being dangled to attract consumers is largely negated by high exchange rates that are applied. This is often done without the knowledge of the consumer. In their own words “……give the illusion that the price is lower than it really is..”. As the ACCC reports, the big four were “consistently more expensive than many other suppliers” for international money transfers.
Pocketwise has made similar observations here in New Zealand. Online options consistently offer better deals than mainstream banks. Before you do your next transfer, make sure you shop for the best deals on international money transfer services.
As comforting as it may be to use a familiar bank for international money transfers, remember loyalty comes at a price.