When you take a look at the bank info for international money transfers, it’s all sunshine and rainbows. No fees or fixed percentages, instant processing, and whatnot. But once you transfer an actual amount of money, you end up waiting more, and when the money hits your bank account it’s significantly less than what was sent.
So, you are looking at your bank account balance and thinking “What the heck happened here?”. But that’s exchange rates and fees for you. Let me fill you in on a little secret, banks make money from interest rates, and money transfer fees the most.
Therefore, understanding how the process works will help you avoid unnecessary fees and hidden costs that banks usually don’t tell you about.
What Are Exchange Rates?
First things first, what are exchange rates? Well, it’s quite simple Exchange rate will tell you how much one currency is worth compared to another. The best way to understand it is if you see the money holding a price tag.
So, for example, if you are converting USD to EUR, the traditional exchange rate is around 1.10 which means that for every €1 you send you’ll receive $1.10.
It’s quite simple, right? Well, yes but right until the banks start to alter with these exchange rates, and not giving you all the information needed when transferring money.
On top of that, these rates fluctuate constantly due to other market forces, supply and demand, and political stability.
How Exchange Rates Affect International Transfers
So, this is the most important question. How will these rates affect you and the money you send internationally. As we mentioned before these exchange rates fluctuate and it is pretty hard to determine the right value at any given moment. So, a 1% difference can seem small when sending smaller amounts of money, but if you are sending large sums, this can mean losing or gaining hundreds of dollars.
Here’s the kicker—those tiny fluctuations in exchange rates can have a huge impact on the amount of money received. A 1% difference in the exchange rate can seem small, but when transferring large sums, that can mean losing or gaining hundreds of dollars.
Let’s set up an example to understand it better:
Let’s say that you need to send $10,000 to a friend in the UK. The exchange rate is 0.75 (which means that $1 gets you £0.75) this is all good and your friend will receive £7,500. But if the rate changes to 0.74 or 0.76, this is a £100 difference up or down just because of a small change in the rate.
What’s Causing These Rate Fluctuations?
So, the question here is what is causing these fluctuations? And can we have a stable market?
Well, these exchange rates are impacted by many local and global economic factors. First, we have the impact of interest rates and inflation (printing of money). Countries with higher interest rates tend to attract more foreign capital. This increases the demand for their currency.
Political stability, and this is a big one. For example, The United States and Saudi Arabia made a deal for their oil reserves that everyone should buy them using the United States Dollar, which increased the demand for the USD and, therefore its value and power. But it seems like things can change as Saudi Arabia wants to ditch the dollar.
Lastly, we have market speculation, where traders constantly buy and sell currencies that drive the rates up and down.
What Banks and Services Don’t Tell You About Hidden Fees
Ever wonder why the rate your bank offers aren’t quite the one you saw online? That’s because banks and money transfer services often add hidden fees to the exchange rate itself. This markup means you’re getting a worse rate than the official market rate, which is how these companies make a profit.
Sneaky Fee Breakdown:
Spread: This is the difference between the rate you get and the “interbank” rate (the rate banks use to trade currencies with each other).
Service fees: Some platforms charge a flat fee on top of their spread, while others might offer “zero fees” but bury it in the unfavorable exchange rate they offer.
You should always use services Genome for international money transfers, as they tend to offer better rates than traditional banks, with transparent fees. These platforms often allow you to see exactly how much will be received on the other end.
Timing Your Transfers: Does It Matter?
Absolutely. Since exchange rates fluctuate constantly, timing your transfer can make a significant difference. For example, if there’s political turmoil in a country, its currency might weaken. A weak currency means it could be a good time to buy it (aka, send money to that country).
On the flip side, waiting for a more favorable rate could save you a nice chunk of cash. Some services even allow you to “lock in” an exchange rate, protecting you from future changes, which is great if you’re transferring large sums.
How to Get the Best Exchange Rates
Here’s where strategy comes in. You don’t just have to accept whatever rate your bank or transfer service offers. There are ways to make sure you get more bang for your buck:
Compare rates: Always use comparison sites to check which service gives the best rate and lowest fees.
Plan your transfers: If you know you need to send money, keep an eye on the rate for a few days. Services like Wise offer alerts to help you know when it’s a good time to transfer.
Watch out for weekends: Exchange rates are typically worse on weekends since the Forex market is closed.
Tips for Businesses
If you’re a business regularly sending or receiving money internationally, consider using FX platforms, which offer tools like forward contracts (locking in a rate) and currency hedging (protecting against future rate changes). This can save a lot of money over time.