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How to safely transfer a large amount of money internationally
Ryan needs to transfer $50,000 to China. What are his best options?
Ryan wants to buy an apartment in China, and he has the money for a down payment to do so. However, since he lives in Australia, he needs to send Australian dollars to China. Where does he start?
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Let’s help Ryan out. Once he learns how international money transfers work, Ryan will be sending funds overseas in no time.
What Ryan ought to be aware of when transferring money
To make the best decision, he’ll want to look at a few key factors.
The exchange rate is what one country’s currency is worth in another currency. For example, Australian dollars might be converted to euros at the following exchange: 1 AUD = 0.62 EUR.
PRO TIP
If you’re exchanging dollars for euros, you can see what the dollar is worth by looking at its mid-market rate. For example, according to the worldwide market, 1 AUD = 0.62 EUR. The exchange rate you get from a bank, however, might be 1 AUD = 0.59 EUR.
Put simply, the mid-market rate is the “real rate” your money should be exchanged for. Get as close to that rate as possible, because a poor exchange rate can result in a loss.
Let’s suppose that at the mid-market rate, $1 is worth 4.92 Chinese yuan. You might find a nice currency exchange business to convert money at that rate, but more likely that business would want to be paid for helping you exchange your money. It might offer to exchange money at a rate of $1 to 4.70 Chinese yuan instead.
That means:
- Instead of $1,000 converting to 4,920 Chinese yuan (or 1,000 x 4.92),
- Your $1,000 will convert to 4,700 Chinese yuan (1,000 x 4.70),
- And the business will effectively profit 220 Chinese yuan — or around $45.
This is one way that currency exchange services make money. That said, carefully note the mid-market rate for the currency pair you’ve chosen. The mid-market rate will be the benchmark on which you’ll know if you’re getting a good or bad deal.
If someone asked you to put $50,000 in cash into a suitcase and fly it to China, doing so would take some effort (as well as break a few laws). You’d want to get paid for your trouble.
In the same way, it takes some work for financial institutions to exchange money and make it available to someone overseas. They don’t exactly fly cash over in suitcases, but they charge fees for their time and effort.
On the flip side, your goal is to pay as little in fees as possible. Factor these fees into your decision on which financial institution to use.
It generally takes one to four business days for your international money transfer to be completed. If the speed of the transfer is important to you, speak with your financial institution to confirm how long it will take. As a generalisation, sending a money transfer to cash is the fastest option, but also one of the most expensive.
Let’s look at a few options Ryan can use to transfer his money. For our examples, we’ll suppose that Ryan’s $50,000 is worth CNY¥246,000 at the mid-market rate: 1 AUD = 4.92 CNY. That’s the baseline Ryan will use when evaluating the strength of his options.
Option #1: Transfer through a bank
Ryan’s first thought for transferring money is to do it through his bank. What might the costs be for that option?
How it works
- Ryan transfers his money to a financial institution (for example, his bank).
- Within the financial institution, Ryan’s $50,000 is converted to Chinese yuan (CNY).
- The money is transferred to a financial institution in China, where Ryan can collect his money.
Exchange rate
Ryan will first want to check the exchange rate he gets on his money. Let’s say his bank sells Chinese yuan at a rate of 4.70. That means if Ryan converts $1, he’ll receive 4.70 Chinese yuan.
PRO TIP
When a financial institution sells currency to you, it is exchanging foreign currency for your local currency. For example, if you’re flying to China, your bank would give you Chinese yuan for your Australian dollars.
When a financial institution buys currency from you, it is giving you local currency for your foreign currency. For example, after you return to Australia, your bank would give you Australian dollars for your yuan.
Ryan checks the mid-market rate for AUD to CNY and finds that it’s 4.92. Let’s compare that to the bank’s rate of 4.70.
- What Ryan’s money is really worth, according to the mid-market rate: $50,000 x 4.92 = CNY¥246,000
- What Ryan’s money is worth when converted by the bank: $50,000 x 4.70 = CNY¥235,000
From the difference in exchange rates, Ryan will lose CNY¥11,000 — or about $2,200.
Fees
In addition to the exchange rate, Ryan takes a look at his bank’s fee for international money transfers. According to his bank, he’ll incur a $12 fee to send money abroad.
Ryan will be receiving the funds at a Chinese bank, which charges a CNY¥220 fee for incoming transfers. (At the mid-market rate, that’s about $44). He factors in this fee as well.
In total, Ryan should expect to pay at least $56 in bank fees.
PRO TIP
Keep in mind that banks on both sides may charge additional fees for handling your international money transfer. Check with the banks to confirm what those fees might be. Also, confirm the details of your transfer before approving it.
Overall
After all is said and done, Ryan’s transfer through his bank will cost $2,200 (what he loses on the exchange rate) plus the $56 in fees assessed by his banks. That’s a total of $2,256.
With that in mind, Ryan’s $50,000 minus the exchange loss and fees would be worth $47,744 on arrival in China.
Option #2: Money transfer specialist
There are many money transfer specialists online that can help with your transfer.
How it works
With a money transfer specialist, the transfer process is very similar to what happens through banks:
- You transfer your funds to a specialist money transfer provider.
- The provider converts your currency.
- The provider transfers the new currency to your overseas bank account.
The main difference you’ll find between money transfer services and banks is the exchange rates they offer. Many money transfer services also don’t charge fees on transfers.
Ryan’s calculations
Ryan is looking at a money transfer service that offers no fees and an exchange rate that’s close to the mid-market rate. He’s able to get a rate of 4.90, meaning he can trade $1 and get CNY¥4.90 Chinese yuan in return. Ryan does the math:
- What Ryan’s money is really worth, according to the mid-market rate: $50,000 x 4.92 = CNY¥246,000
- What Ryan’s money is worth when converted by the money-transfer service: $50,000 x 4.90 = CNY¥245,000
Not including any bank fees Ryan might incur for transferring or receiving money, Ryan’s money would be worth about $49,800 on arrival in China.
Option #3: Peer-to-peer money transfer
Finally, Ryan considers peer-to-peer (P2P) money-transfer services. These are services that match individuals who want to trade currencies.
For example:
- You want to convert $1,000 into Chinese yuan.
- On the other side of the world, someone wants to convert Chinese yuan into Australian dollars in the same amount.
A peer-to-peer money service matches you and the other individual interested in converting cash. The service charges a fee for facilitating the exchange and you “trade” currencies with the other individual. The converted currency is soon be transferred to a bank account of your choice.
Ryan’s calculations
Ryan looks into making a P2P transfer. He wants to convert his $50,000 to Chinese yuan, and it just so happens that someone else is offering Australian dollars for the same amount.
- What Ryan’s money is really worth, according to the mid-market rate: $50,000 x 4.92 = CNY¥246,000
The P2P service charges a flat fee of 0.7% for the transaction. Then, it converts Ryan’s currency at the mid-market rate (1 AUD = 6.92 CNY).
- Ryan first calculates the fee (0.7%, or 0.007 on a calculator): $50,000 x 0.007 = a fee of $350
- That leaves him with: $49,650
- Now, here’s what Ryan’s money would be worth when converted through the P2P service: $49,650 x 4.92 = CNY¥244,278
Not including any bank fees Ryan might incur for transferring or receiving money, Ryan’s money would be worth $49,650 on arrival in China.
Option #4: Bitcoin
Using a cryptocurrency like bitcoin can be a way to transfer your money overseas. When it's in large amounts, however, there are a number of things you need to be aware of. As a volatile market, cryptocurrency prices move quickly. If you're buying a coin in large amounts, slippage occurs.
Slippage happens when the market moves against you before the trade can be completed, which makes the trade more expensive than expected. To learn more about buying cryptocurrency in large amounts, check our guide on this topic.
Comparing all of the options
After looking at the various options, these are the calculations Ryan made for how much his $50,000 would be worth in China:
| Money transfer specialist | $49,800 |
| Peer-to-peer money transfer | $49,650 |
| Bank | $47,744 |
Here’s how much each transfer option would cost him:
| Money transfer specialist | $200 |
| Peer-to-peer money transfer | $350 |
| Bank | $2,256 |
So, what does Ryan choose?
To Ryan, a money transfer specialist is the cheapest option. On the other side of the spectrum, banks are quite a bit more expensive. With such a difference between the costs, it pays to check out all your options and choose the best one for you.
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Disclaimer: Exchange rates change often. Confirm the total cost with the provider before transferring money.
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