As discussed in previous posts, once you’re using PayPal to sell your stuff online, you will also want to eventually withdraw the money you make into your bank account so that you can actually use it. Here’s where things get a bit nasty, unfortunately.

If you have a US bank account and a US PayPal account, you can stop reading right here. You’re in luck. All you have to do is attach your bank account to your PayPal account and withdraw USD from your PayPal account to your bank account. There are no currency conversions to worry about, and the transfer itself is free from PayPal’s side.

If you are the owner of a non-US PayPal account and you don’t have a US bank account, things are not so pretty.

You are given two options (depending on your home country, it might even be just one option):

1. Withdraw to a debit or credit card
2. Withdraw to your local bank account.

If you sell online you probably use USD as the main currency on your store and hence your PayPal balance will be in USD. What happens is that since your local credit card or bank account are not in USD, an automatic currency conversion takes place on PayPal’s end as the money is on the way out. The conversion rates are bad, to put it mildly. Hence you’re going to lose a lot of money on that conversion.

Before we continue, it would be a good move on your end to check whether other services like TransferWise or Payoneer would be an even better fit for you than PayPal. In general, I recommend trying to find an alternative to using PayPal for whatever you are trying to do, since PayPal has terrible customer support and charges high fees.

Withdrawing to Cards

In the case of cards, you can ask PayPal to switch off automatic currency conversion, and have the conversion happen on your bank’s side, which will give you a better rate. I wrote about how to do this in my earlier post on currency conversion and PayPal. There are still two inconveniences when withdrawing in this manner:

1. You will be forced to convert USD to your home currency upon withdrawal.
2. There is a limit per transaction of $2,500, and an associated fee per transaction.

These two points are problematic. Let’s say that your home currency is in a weak position and you would therefore store money in USD and convert later when things improve. You cannot do this as you can’t do a straight through USD-USD transfer, given that your card will be denominated in the local currency. You can open a local bank account in USD but you won’t be able to get a card associated with it. At least that’s the case with all the banks I’ve checked so far. If you find a bank that lets you do that, please leave a comment and let me know.

The limit per transaction poses some obvious problems. Let’s say you are a high volume seller and you want to withdraw $100k per month from PayPal. You will have to make 40 separate transactions and you will be charged for every single one of them. Of course, all you ever wanted to do is one transaction, if only PayPal let you do that. Apparently this limit per transaction is dictated by the card providers (for example MasterCard or Visa). Still, it’s not convenient for serious sellers.

If your bank does not provide good conversion rates, remember that some PayPal users have had success linking their PayPal account to digital banks such as Revolut, TransferWise and N26. They typically provide much better rates than your local bank. You might want to give that a shot since opening an account with these digital banks is free anyway.

Note that as from April 2020 the $2,500 limit seems to have been modified, as I have been able to make significantly bigger transfers to the debit card. I’m not sure if this is a glitch or whether something really changed from PayPal’s end.

Withdrawing to a Local Bank Account

Withdrawing to a local bank account does not present any limits, so you can pull out that $100k without any problems at one go, however you will be hit by PayPal’s bad exchange rate plus currency conversion charges. It is usually easy to open a USD account with your local bank, the big problem is that PayPal will not allow you to transfer USD from your PayPal balance into your local USD account if you are based in Europe, as they consider all European bank accounts as Euro-based.

Note that in April 2020 I was able to add a USD account to my PayPal business account, so there seems to be a way to get a non-Euro bank account added. I had to ask PayPal to add it manually, as the link in the dashboard did not let me do it. I will be testing a few withdrawals with this method and will update the section below if I see that it becomes more advantageous to withdraw to the USD bank account instead of the debit card.

Real Example – Withdrawing to Card vs Local Bank Account

As an example at the time of writing this article, if you transferred $10k out of PayPal via a bank transfer to a local bank in Malta (the country where my bank is account is located in), you would have ultimately received €8,839 in the bank account. My bank does not charge any fees for currency conversion.

On the other hand, if you were to withdraw that same $10k out of PayPal to a debit/credit card linked to the same account, you would get €8,911. That amount is after deducting PayPal’s card withdrawal charge ($2.50/€2 per withdrawal, up to a max of $2,500 per withdrawal; hence four withdrawals would be needed in this case to get $10k out).

The local bank was using 0.8921 as the exchange rate between USD and EUR.

PayPal, on the other hand, was using 0.8839, a significantly different rate.

PayPal includes the charges within the exchange rate, so if you accuse them of having a really bad exchange rate their excuse will be that it includes the currency conversion fees.

At the end of the day then, we would be better off when withdrawing to a card by €72. 

Not that small of an amount, especially if you start considering transferring higher amounts. The difference would be around €700 on a $100k transfer, which is ridiculous.

Another problem is that PayPal does not send you any kind of bill for the currency conversion fee, hence you cannot expensive it in your company’s books. It is totally hidden within the exchange rate they use so there’s nothing you can do about it from an accounting point of view.

Other Options

The difficulties detailed above affect every country in the world except for Canada. In Canada, users have found a loophole that allows them to perform USD to USD transfers without any charges. See here and here. Once again I had this confirmed by a PayPal support agent, as can be seen in the email excerpt below:

While not being familiar with all of our 200+ countries’ user agreements, I am fairly confident saying that Canada is the only country we have with an exception that allows a local USD denominated bank to be added and used.

I believe this is also related to how the US and Canadian bank network is cooperating. Regardless, this is not something we offer to a Maltese account, other than if you had an actual bank account registered in the US to withdraw USD to.

There are some other options one could explore:

1. Use BrainTree instead of PayPal
2. Open a non-resident Canadian bank account with RBC
3. Open a Canadian PayPal account connected with an HSBC bank account in Malta
4. Use Payoneer
5. Use Etrade
6. Open a US bank account

I’ve written about BrainTree already, so you can refer to my earlier post about the service, although I don’t really consider it a full alternative to PayPal as buyers would need to use their credit card instead of a PayPal account when paying.

Opening a Canadian bank account with RBS is easier than opening a US bank account. I don’t have much experience in this area except checking if it’s possible and confirming that it is. What one would do then is use the routing number of that bank account to add it as a US bank account within PayPal and withdraw money into the RBS account. Then one would use TransferWise to transfer the funds to a Maltese bank account. I am still checking to confirm 100% whether PayPal would allow this setup on a Maltese bank account or not.

The Canadian PayPal account plus Maltese HSBC USD account is an option that I’m still checking about, so I can’t make any recommendations at this stage.

Until a few months ago it was possible to open a Payoneer account and then add that to PayPal as a bank account via the routing number you are given. The idea was to then withdraw the money into your Payoneer account as you would have done with a US bank account. From then you would then be able to transfer to your local bank account or else pay using the Payoneer Mastercard or even withdraw cash from an ATM. It appears that this is no longer possible, although it’s worth monitoring this option as things may change in the future or an alternative to Payoneer might crop up.

Opening an Etrade account and withdrawing money to it is also another option that I’ve seen being discussed, and again I need to look into it in more detail.

The last option would, of course, be to open a USD account with a US bank, something that is easier said than done. Usually, a Social Security Number (SSN) is required, however some banks allow you to open an account without it when visiting the branch in the US. There might still be limitations though (for example, no bank transfers possible) which would limit the practicality of such an account for my particular desired usage. Some people have also asked me whether it is possible to open a US bank account for their non-US company. As far as I know this is impossible unless you are going to deposit a few million dollars into that account.

If you have found a solution I’d love to know how you managed, please go ahead and leave a comment!

Further reading

• PayPal Steals from Its Customers with Hidden Fees – Peter Sandeen from Finland