The cheapest way to send money abroad

Banks routinely offer terrible deals for international transfers but businesses like TransferWise could help you hold on to more of your cash

Anyone who has tried to transfer money overseas using their bank will be familiar with that feeling of shock.

You click on the appropriate link on the bank’s website, enter a sizeable number in the Amount box and click a button to do the currency conversion. But the sum that pops up is completely different from the estimate you got from an online currency conversion calculator. It is way lower, in fact. So what is the reason for the difference?

Well, the exchange rate you found on the calculator was probably the mid-market rate – in other words, it was the midpoint between demand and supply for that particular currency on the day in question. This mid-market rate is also known as the “real” exchange rate and is used by professional currency traders.

Unfortunately, however, your bank is not passing this mid-market rate on to you. Instead, it is taking the mid-market rate and applying a margin on top without being transparent about by how much it is overcharging you.

It is claiming a healthy amount of your hard-earned cash as commission – either in the form of an unfavourable exchange rate or fixed fees or, quite possibly, both. The result is that the bank makes a tidy profit and you get a bad deal.

How bad a deal? Well, the cost of the transfer is likely to be in the region of 5pc, so you pay £50 for every £1,000 you transfer overseas. Ouch.

Fortunately, today’s consumers have a raft of options open to them when they are looking to send money abroad. Besides banks, building societies and post offices, they can use online currency brokers as well as online peer-to-peer currency exchanges such as TransferWise.

Online businesses have lower overheads than banks with chains of high-street branches, so they can pass on savings to consumers.

Warrick Chamberlain, director of London-based mouse-proofing company Greenstone Pest Control, says consumers should do their homework when they are looking to transfer money overseas.

Originally from New Zealand, he wanted to send some money back home a couple of years ago. He says: “I looked at a bank originally but it was really expensive.” So he investigated the options – something he advises other consumers to do.

“There are a lot of different providers offering different rates,” he says. “But when you’re transferring £5,000, a few per cent here and there can make a big difference. You should always shop around when it comes to money.”

Taavet Hinrikus, chief executive and co-founder of TransferWise, agrees. “Our advice would be to shop around and to look at alternative providers to your bank.

“Make sure you understand what you’re really being charged,” he says. “Compare the exchange rate you’re offered to the real one on Reuters or XE.com, and check the stated transaction fee from your bank against those offered by other market players.”

With TransferWise, consumers benefit from the real exchange rate and transparent fees. It uses technology to match you with people who can provide you with the currency that you want in exchange for the currency that you already have.

So if you wanted to exchange pounds for euros and someone else wanted to do the reverse, the platform would match you. By taking a peer-to-peer approach, TransferWise can offer a money transfer service that is cost-effective and quick and easy to use.

It has a range of apps for iPhones, iPads and Android devices. Its iOS app is so good that Apple awarded it the accolade of “Most Innovative 2015”.

Mr Hinrikus says: “Costs vary between currencies. But we’re usually around eight to ten times cheaper and five times faster than banks.”

Visit www.transferwise.com for more information