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Hidden costs and international money transfer: More of the same?

If you’re buying from overseas for your small business, paying a mortgage on a holiday home, receiving a pension from an old job abroad, or simply looking to buy foreign currency for your holiday, it's important that international money transfer is as inexpensive as possible. High street banks offer some seemingly low fees and easy-to-use transfer tools, but new data underlines that it pays to be aware of hidden costs. 

A spread too far?

A recent study of six of the UK’s ‘high street’ banks showed that up to 96% of transfer revenues come not from advertised flat fees, but from exchange rates. Small firms pay banks £4bn a year as a result of these built-in charges, and the report states that the average cost to a small business of transferring £75,000 within the EU is £1,822 (2.43%), £1,807 of this figure coming from the ‘spread’.

What is the spread?

The spread, in FX terms, is the difference between the price that a registered financial entity buys and sells currency for. Banks and foreign exchange brokers trade currency with one other based on ‘interbank’ rates that have a very 'tight' spread, i.e. banks don't charge other banks a lot to trade currency. When banks trade foreign currency to the public, however, they quietly widen the spread to increase profits.

While it's entirely reasonable that banks should make money for the services they provide, the study in question offers new evidence that Europe's financial institutions aren't transparent enough about the spread margin they add to currency transactions.

A global problem

High fees for international money transfer aren't a Europe-only issue, however. The World Bank Group found that anyone sending money to sub-Saharan Africa can expect to pay around 9.72% of the amount being sent in fees, with the highest sums being charged by commercial banks. Around 3 million people from the region currently working abroad, so charges for transferring money back home really add up.

The problem doesn't stop at money-to-money transfers like remittances, either; if you shop for products overseas, chances are you're also being hit by hidden charges. Last year, a study found that some institutions charge between £50 and £78 in hidden exchange rate costs to transfer just £1000-worth of euros for purchases, even though advertised fixed fees range from only £9.90 to £20.

How to avoid hidden costs

If you regularly send money overseas and are only comfortable using your bank, you can find out what's really being charged by using an exchange rate tool from a currency broker site. If you need to convert 100,000 Japanese yen into Hong Kong dollars, for example, you could take note of the seven options listed on The Money Cloud offers site, then compare these figures with the rate offered by your provider. Likewise, it's important to realise that keeping international money transfer costs down isn’t just about today’s exchange rates. If you’re a small business, it’s important to plan your currency transfer strategy depending on the countries and timeframe involved.

Both businesses and consumers should take a look at our simple rules and advice to follow when sending money overseas. If you're interested in finding out more, contact The Money Cloud today and we'll help you to find the best deal for your needs.

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Andy Ferguson

Format is very organized and incredibly informative. All the information is right there and it is all pertinent to what I need to know. Great work.


I am extremely impressed with the Investec currency exchange team service levels, they are fast and efficient. Excellent trading rates and straight talking, what more do you need.

International Money Transfers for Individuals

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International payments - overseas money transfers


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