When you become an expat and are sent overseas, your first three questions to the company sending you there most likely are these: How much will I be paid, which currency will that be in, and how do I get the money to where I need it?
In our case, these questions turned out to have simple answers that worked well for us. A smaller portion of the salary went to our home bank in the U.S. where we could use it for house-related expenses and to pay into our savings accounts. The larger portion went into our newly-opened Standard Bank account in South African rand (ZAR). For a large Fortune 500 corporation this was no issue and saved us from having to transfer money ourselves. We only made one large transfer at the beginning of our assignment to buy our cars, and henceforth we didn’t have to deal with currency transfers.
(Actually, I lied. Once, we needed U.S. $ for a vacation in Zimbabwe, and getting our hands on them became a multi-day errand involving enough ink to fingerprint the entire prison population of a small country, but that is another story.)
Exchange Rates vs Fees, and Banks vs Currency Brokers
Before we talk currency transfer methods, let’s talk timing. Quite frankly, the timing of your money transfer is much more crucial than the method. Why? Because of the exchange rate. Here is where you should not try to emulate Noisette and me. We are the kind of people who move to America to spend a lot of money on a graduate school degree at the precise moment the first Gulf War breaks out and makes the dollar twice as expensive as it was a few days earlier. And the same people who move to South Africa for the few years the rand is fairly strong at 7-1 before it slides back to something like 13-1 the minute we have left.
If your situation is similar to ours and your company pays you in the local currency, I wouldn’t worry too much about the best way to transfer money internationally. If you just do a transfer here and there, the easiest option is to go through your bank and pay their fee for money transfers, which is annoying but won’t be a major expense. Consider it a convenience fee, similar to paying a charge for booking tickets online.
It’s when you get paid in your home country and have to make the transfers yourself when you have to seriously research the best option. The larger the transfer, the higher generally the cost, so a small difference in fees can turn into a big number. Why?
Let’s look at what the cost of an international money transfer is typically based on:
- The exchange rate
- The fee
The former works to be a percentage of the total amount, and the latter is typically fixed. Don’t be fooled by banks that advertise “low fees” or “0% commission.” This often means that they disguise their fees in the exchange rate, since they need to make money somehow. Banks sell currency at the interbank exchange rate with an added mark-up, so it is this exchange rate you’ll have to look at closely. It’s easy to Google any exchange rate in an instant at the time of making your transfer. See how far it is off the rate you’re quoted, then calculate the actual cost by multiplying the spread with the dollar amount, and adding the quoted fee, if any.
Can you get a better deal for your currency transfer by choosing another option than a bank? Most likely, yes.
One such option is a currency broker, such as Transferwise, HiFx, or Xoom. Even though they also use the exchange rate spread to make money off transfers, online brokers update their rates continually, versus banks who tend to set their rates only once at the start of each day. When you transfer large amounts of money, this variation in rate depending on your timing can amount to quite a large savings. When choosing a currency broker for your transfer, you should shop around and get several quotes before settling on one.
Besides Banks and Brokers, Which Other Money Transfer Options do I Have?
One simple option is to use your credit or debit card to withdraw money from a local ATM. It won’t be the cheapest option, but certainly an easy and safe one. When I needed cash in Moshi, Tanzania, because – not surprisingly – I had not even come close to calculating the correct amount of money I would need to pay for our Kilimanjaro post-summit beer orgy and porter tips, I was very grateful for the ATM we found in the dusty city center that was willing to spit out a nice sum of shillings thousands of miles away from my actual bank. I did not care very much about any hidden fees at that moment, trust me.
Well. Remember what I said earlier. There is always a fee as long as you have to transfer money from one currency into another. If there isn’t an outright fee, it’s hidden in the exchange rate.
Some of these apps won’t even work for South Africa. I could find nothing about South Africa on the websites for Venmo and Popmoney, so make sure you research that first. PayPal, from my own experience as well as from interviewing a large number of friends for this article, is the most trusted in money transfer, and it actually has a page detailing transfers to South Africa. As long as I have used it, PayPal has been secure and reliable, if not always user friendly. Make sure you use the “Friends and Family” option when transferring funds to avoid the fee charged to sellers of goods and services. You can’t request money that way, rather the person doing the transferring has to initiate it or PayPal slaps a fee on the transaction (I learned this lesson by doing it the wrong way).
And remember, just because you don’t pay a fee doesn’t mean there isn’t one. The PayPal hidden fee in the exchange rate spread is actually quite high.
How About the Security of My Transaction?
And there are other hidden costs besides the ones disguised in the exchange rate. Consider the risk you’re taking on. I have now heard from two good friends whose bank accounts were hacked through Venmo, with consequences that were both costly and annoying. It just doesn’t have the same level of security as other e-payment systems. To use Venmo, you have to enter your bank login details, and it’s not hard for hackers to get to them and make off with your money. It could be as simple as you using Venmo while using an unsecured wifi connection. I’m considering shutting down my Venmo app because of this. To be fair, many of my friends are using it daily without any problems. To protect yourself, you can link it to a credit card (which protects your from fraud) instead of your bank account, but then, wouldn’t you know it, there is a fee for that!
One thing is for sure: When you move to South Africa, you may be pleasantly surprised as to the user friendliness of money transfer methods WITHIN the country. Everyone uses EFT (electronic funds transfer) so you can say goodbye to your tiresome old checkbook, and you can even use methods such as sending money to someone’s cellphone number via your phone, which the recipient can turn into easy cash. Fraud, of course, is always a possibility in South Africa, but I have found the fraud protections generally to be very good.
I hope this article has given you an idea about money transfer options as well as the risks and red flags to look out for. Please let me know if I’ve forgotten anything or if you have any other valuable information to add.