Last updated on November 16th, 2022 at 10:58 am
Research conducted by the influential consumer finance website Moneytransfercomparison.com has found that banks across the Anglosphere are continuing to charge their customers hefty amounts in fees for making international money transfers.
Perhaps tellingly, the US banks were the worst offenders levying the highest fees on international bank transfers through a combination of high fixed fees and unfavourable forex exchange mark-ups.
This is despite increased competition from next-generation money transfer providers who are fast luring customers away from the high street banking giants.
The Cost of Transferring Money Abroad
Right across the Anglosphere, bank accounts are free at the point of use. By and large, banks make their money from customers by investing their money or by charging monthly account fees – charging customers for transactions, however, is exceptionally rare.
That is not the case whenever a customer instructs their bank to process an international transaction where international money transfer fees and other costs are the default setting.
Firstly, banks charge fixed, transaction fees (sometimes known as SWIFT transfer fees or wire fees) which can vary widely; in the UK the range is £0 – £30 and the US $0 – $50. But that is not all.
When a bank processes an international, foreign currency payment they also handle the currency exchange and as such, get to set the rate as they see fit.
Rather than offer customers the inter-bank rate (the open market rate as reported by organisations like XE) banks instead apply a foreign exchange markup (or mark-down) which allows them to make an additional profit from the transaction.
According to the moneytransfercomparison.com research, these mark-ups ranged from 0.67% – 4.58% among the banks surveyed.
To illustrate this let’s now look at an example transaction.
Miguel wants to send $1,000 USD from his bank account in California to his family in Mexico. He looks at the daily exchange rate on XE, sees that $1 = MXN19.99 and so $1,000 is MXN19989.57; therefore this is the amount he expects his family to receive.
However, when he instructs his bank to process the transfer, they firstly deduct the $50 transaction fee leaving $950.
They then change the remaining $950 into Mexican Pesos using their own exchange rate which is 3% lower than the inter-bank or market rate and so $1 only equates to MXN 19.391.
After fees and foreign currency exchange deductions, Miguel’s family in Mexico actually receive MXN 18.421 – and that’s before their own bank takes a transaction fee!
While our example has (hopefully) made the costs of transferring money abroad clear, this is not always the case in reality which has caused some critics of the banking sector to accuse them of effectively applying hidden fees.
Whereas the fixed transaction fees are usually specified in bank account terms and conditions, on banks’ websites, and will be relaid at the point of executing a transfer, the foreign exchange markup may not be.
This means that the only way that customers can identify how much they are being charged is by making their own calculations.
When researching international bank transfer costs moneytransfercomparison.com surveyed all of the major banks in the UK, USA, Australia, Canada, New Zealand and Europe.
The UK and specifically the City of London is a global centre of financial services and more currency is traded here than anywhere else on earth.
However, that doesn’t appear to have encouraged the banks to become competitive or particularly transparent when it comes to money transfers.
From the 7 leading banks, the average transfer fee is £14.50 and the average foreign exchange markup is around 2.5%. This means that the average costs of a £10k transfer equate to £215.
Interestingly, with the exception of Lloyds none of the major UK banks set out their foreign exchange mark-ups leaving customers to work it out for themselves.
US banking regulation is largely controlled at a state level so there is some real variance across the country.
Of 6 of the biggest banks in the US, the average foreign currency transfer fee is $26.60 (although strangely it’s higher for a USD foreign transfer!) and the average markup is closer to 3%.
The average costs associated with a $10,000 transfer would therefore be around $300 – by far the highest identified by the research.
Australian banking regulation encourages transparency and banks are required to publish exchange rates on their websites.
In terms of fees, the big Australian banks mostly charged similar amounts to one another with an average of A$13.80.
When it came to currency markups though, the average is around 3.8% with some outliers charging 4.88%.
As such the typical cost of a A$10k transfer would be A$365.
Like with the UK and the US, the Big 5 banks in Canada charge widely varying money transfer fees, but with a batting average of C$7.16 were notably cheaper than those of both the UK and the US.
As for mark-ups, the rounded-up average from the big 5 is around 3% making the cost of transferring C$10k C$265.
Plucky little New Zealand is not exactly a financial behemoth but with a sizable expat population the country sends and receives a good amount of remittances.
Of the 2 New Zealand banks surveyed in the research, the average (online) transaction fee is $7 with foreign exchange mark-ups averaging 2.8%.
The average cost of sending NZ$10k works out at NZ$265.
The introduction of the single currency in 1999 helped to align banking best practices across the Eurozone/wider EU/EEA area and tightening regulation from Brussels has helped to drive down fees for transfers within SEPA with fees typically less than a Euro.
However, transfer fees for transactions outside of the SEPA are substantially more costly with some banks even charging a percentage fee.
However, the average markups among the European banks surveyed are around 1.5% making them the best bank exchange rates from the survey.
To summarise, international bank transfer fees are a staple of the sector all over the world. However, the exact cost of transferring money abroad does vary between countries owing to differences in SWIFT transfer fees/costs and foreign exchange markups.
From the research we discussed today, the lowest international money transfer fees were found in Canada and the best bank exchange rates in the Eurozone.