Why can’t I get the market rate for my international money transfer?

The market rate isn’t just for banks and companies anymore, find out how to get as close to the market rate as you can.

It may not come as a surprise, but the foreign exchange rate you hear quoted on the evening news or the rate you see when you do a Google search isn’t the rate you’ll get when you send money overseas.

This is the market rate, sometimes called the interbank rate. Banks and money transfer companies use this rate when they do business amongst themselves. You get the market rate plus a margin. Even if the international money transfer company doesn’t charge a commission, there’s a profit inbuilt in the exchange rate.

Although developments in technology helping connect people from all over the world mean you can now get access to rates usually reserved for banks and businesses using a Peer-2-Peer (P2P) international money transfer service, even these services need to make a dollar. As a general consumer, you probably won’t get the real market rate on your overseas money transfer.

In theory, it may be possible to get the market rate (or even better) using a P2P international money transfer company with a virtual market place such as CurrencyFair; however, the party selling foreign currency will need to do so at a loss. P2P services such as Transferwise and CurrencyFair are undercutting banks and traditional money transfer companies and bringing you as close as ever to the market foreign exchange rate.

What is the market rate?

The market rate is the rate financial institutions and foreign exchange brokers use to trade large transactions. It’s a mid way point between foreign currency buy and sell rates. This rate is fluid and changes every couple of seconds as currencies are traded on the global foreign exchange market.

Compare international money transfer providers.

What are P2P international money transfers?

P2P foreign exchange services cut out the middleman and connect people on different sides of the world looking to buy and sell different currencies. P2P lending services give you the market rate plus a small commission, which often ends up being more competitive than international money transfer services on offer from banks and traditional companies such as Western Union or MoneyGram.

Compare P2P international money transfer services.

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Who are the P2P international money transfer companies?

Have a look at these P2P international money transfer companies operating in Australia.

  • Transferwise

From the people who built Skype, Transferwise can connect you to people all over the world looking to sell the currency you want to buy. Transferwise gives you the real market rate on your international money transfer, while a small commission is charged for your transfer. Debit card and credit card payments attract an additional fee. The commission is a percentage of the total quote for transfers greater than $20,000.

  • Currencyfair

CurrencyFair provides an online marketplace where you can trade foreign currency, which is sometimes better than the market foreign exchange rate. However, if you’re getting a rate which is better than the market rate, the person overseas selling currency will need to accept your exchange rate for less than what they could get from another service. If you can’t find someone in the CurrencyFair marketplace who will match your rate, CurrencyFair charge 0.15% of the transfer, if you can’t TransferWise will match your quote and charge 0.4% to 0.5%.

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A comparison of P2P money transfer companies and banks

This table below shows how the features are different between a P2P international money transfer company and a bank. Rates are current 3pm AEST 05/04/16.

TransferwiseBank (Commbank)
Buy currency:GBPGBP
Rate:AUD$1 = £0.54346 GBPAUD$1 = £0.51440 GBP
Sell currency:AUD ($1,000)AUD ($1,000)
Fees:0.5% + $1 AUD. On $1,000, that works out to be $6$6
Total amount received (GBP):£540.20£511.31

*Current 26/04/2018

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What to look out for when comparing international money transfer companies

Consider the following when you’re comparing international money transfer companies.

  • Fees. The commission: charged on a per-transfer basis. Disbursement fee: charged by the receiving bank (not all the time).
  • Indicative rates and currency conversion calculators. When you compare quotes use the online currency converter tool on different websites, more often than not, the market rate is quoted. This is used for example purposes and chances are this is not the rate you’ll get when you request and accept a quote from an international money transfer.
  • 0% commission. Some providers advertise that they don’t charge a commission on your international money transfer — this includes first transfer fee deals. While you don’t pay an additional fee (a commission) for the transfer service, a margin is applied to the foreign exchange rate to compensate for this. Make sure you compare quotes from providers which do and don’t charge a commission as well as P2P lenders so you can find out whether it’s better to pay a commission to get a better foreign exchange rate or not.
  • Static foreign exchange rates. The foreign exchange market is fluid, currency is bought and sold all the time, and the market rate is updated every couple of seconds to reflect this. International money transfer rates on offer from banks, for example, are updated a couple of times a day at best, and sometimes just once a day. A set rate for the day is not an accurate reflection of the foreign exchange market and you will have little idea about how much you’re being overcharged.
  • Payment method. If you pay using your credit card or debit card instead of paying using a bank transfer, you may pay more for your transfer.

Everyday consumers don’t have access to the market rate; however, P2P transfer companies and international money transfer services can offer you a competitive deal. Services offered by Transferwise, CurrencyFair, TorFX and OFX cost a lot less to use than the banks.

Don’t be worried about security either, these companies are completely safe to use. There’s no reason why you shouldn’t compare all your options and go for a deal which will save you money on your international money transfer.

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