How to Save Money on Currency Conversions and Overseas Transfers in 2020

There are alternatives to using high street banks for converting and sending money abroad.

High street banks are being threatened by leaner fintech companies with better technology that provide a better service at a lower cost. That’s a statement that most of us have heard from one source or another over the past few years.

The two most well-known services are TransferWise and Currencyfair.

TransferWise

 

Let’s see how that translates into a real-life example.

Converting $100,000 to Euros

Let’s say we need to convert $100,000 into euros. We’ll pitch a typical high street bank against two well-known currency conversion services: Currencyfair and TransferWise.

I picked two Maltese banks, HSBC and BOV. Here are their advertised rates:

Having checked all the rates, let’s have a look at the final results.

Here’s what each Maltese bank will give us in return for our USD:

• BOV: €87,734
• HSBC: €87,039

Amazingly, between the two leading banks in Malta, we see a difference of €700 for the same simple service. Pretty bewildering if you ask me. I believe that both banks also charge a fee, although I was unable to locate the pricing for currency conversions on their website.

Let’s move on to the online currency conversion giants:

• Currencyfair: €88,837
• Transferwise: €88,925

Note that Currencyfair improves on the BOV’s rate by €1,100, and TransferWise by €1,200. You must also keep in mind that I’ve seen banks that provide much worse conversion rates and extra fees for conversion. Even so, the differences between the fintechs and the Maltese banks are pretty impressive, and I, therefore, see it as a no-brainer to go for either TransferWise or Currencyfair for currency conversions.

Convert currency with TransferWise

And now let’s look at some more exotic options that can give you even better results with some extra work on your end.

Bonus 1: Using Crypto for Conversions

You could use a crypto exchange like Kraken or Binance and do your currency conversion via Bitcoin or a stablecoin. You can read more about that in my dedicated post on the subject.

Bonus 2: A Clever Hack using the Mintos platform

Another clever move would be to skip all the banks and currency conversion services and use Mintos for my currency conversion needs. Mintos is currently the best European P2P lending platform and I’ve been obtaining upwards of 10% returns per year on my investments there.

You might be wondering what all this has to do with our currency conversion case study.

The thing is, Mintos launched a foreign exchange service on their own platform. You can, therefore, deposit those $100,000 and convert them to euros there. At the time of writing, the rate employed by Mintos for USD to EUR conversions was 0.892818. They also charge a 0.7% fee.

• Mintos: €88,581

That’s by far better than the banks’ rates, and slightly worse than TransferWise and Currencyfair. However, once your money is on Mintos, why not invest it there? If you don’t want to park your money there as an investment for a long time, just let your money work for you for just one month, then use the secondary market to sell your loans. The secondary market on Mintos is highly liquid, just as an example I know an investor who sold $1m on the Mintos secondary market in just one day recently.

Keeping an average return rate of 10%, which is easily achieved at the moment on Mintos, after parking our newly converted USD to EUR on the platform for a month, we would be able to withdraw the following:

• Converted currency €88,581 + Returns of 1 month circa €885 = €89,466

That’s the best result of this currency conversion experiment. You could also keep some money invested if you like Mintos and withdraw the rest, or keep the whole amount invested and gain around €8-10,000 per year at the current interest rates.

Bonus 3: Negotiate a Better Rate with Your Bank

If you are processing a significant volume of currency conversions every year (I’d say $50,000 and above) it would make sense to reach out to your bank and ask if they are open to negotiating a better rate for you. This is a win-win situation and most banks will be happy to give you a favorable rate.

As an example, I was able to negotiate a special rate with my bank to convert from USD to EUR.

By way of example, for today they quoted a Preferential Rate of 1.0998 when the Official Buying Rate was 1.1138 (Reference or Average Rate was 1.0946).

Just to give you an example of the effect of this concession, let’s take an example transfer of US$ 66,000. The conversion of this amount would work out as follows:

Interbank rate	US$ 66,000 @ the average rate of 1.0946 = Eur 60,296
Conversion at the Quoted Buying Rate	US$ 66,000 @ the buying rate of 1.1138 = Eur 59,256
Conversion at the Preferential Rate	US$ 66,000 @ the preferential rate of 1.0998 = 60,011

This means that I gain the difference between Eur 59,256 and Eur 60,011 or Eur 1,040 and Eur 285 = Eur 755.

TransferWise

Sending money abroad is deceptively expensive, thanks to the hidden fees we’ve all been forced to pay. Now TransferWise lets expats, foreign students and businesses transfer money wherever it’s needed, at the lowest possible cost. No hidden fees, no headache.

This is by far my favorite service.

Sign up to Transferwise

Payoneer

Here’s some information about the Payoneer services:

Payoneer Prepaid Debit MasterCard Card
You can sign up for a Payoneer card, and receive your payments directly to that card. As mentioned above, you pay a flat fee per payment received, and then the funds are loaded to your card within 2 business days. You can also choose to pay an extra $3 to have it loaded within minutes. The card is held in USD, and you can use it to make purchases online, in stores, and at ATMs worldwide. As a debit MasterCard card, all purchases in a non-USD currency are converted using MasterCard’s official exchange rates, which can be estimated here. A conversion charge of up to 3% also applies.

Payoneer Global Bank Transfer Service
If you don’t want the prepaid card and instead want to get paid directly to your bank account, you can sign up for this service. It allows you to receive payments directly to your bank account in over 200 countries.

For more than 50 countries, we provide a local transfer solution. This means that funds are actually being paid to you from a local bank in your country, in your local currency. This eliminates any international transfer, and the extra charges associated with them. For the remaining 150+ countries we offer SWIFT transfers.

You pay per payment, with costs starting as low as $2.99 per payment (depending on your country). You will be able to choose the currency of payment, and if currency conversion is required, we use the official market mid-rate (at the time of transfer), and a conversion charge of 2% for the six major currencies we use, which are Euro (EUR), British Pound (GBP), Canadian Dollar (CAD), Philippine Peso (PHP), Australian Dollar (AUD) and Romanian Leu (RON). For all other currencies, a charge of up to 3% applies.

The Payoneer prepaid MasterCard works just like any other MasterCard. The card is accepted at all locations worldwide, wherever MasterCard is accepted electronically. You can use it at any point of sale location to make purchases, whether online or at retail locations. You can also use the Prepaid MasterCard at ATMs worldwide to withdraw cash. The Prepaid MasterCard may be used for online transactions wherever MasterCard is an accepted form of payment.

The fees for withdrawing at an ATM are $3.15+3% of the withdrawal amount for currency conversion.

Payoneer charges 1% of the payment amount when transferring to it.

The yearly fee of Payoneer is $29.95 per year.

Anytime money crosses borders or currencies, MasterCard and the issuing bank apply processing fees to the transaction. This is true of both POS (Point-of-Sale) and ATM transactions.

When the Payoneer card is used for non-USD transactions, a currency conversion fee takes place based on MasterCard’s exchange rate, which is adjusted regularly based on market conditions. The processing fee charged with the Payoneer card can be up to 3%. Please note that currency conversion fees are charged by all banks, and the fees charged with Payoneer cards are among the lowest in the market.

With all these options, you should also keep in mind that the two bank accounts can be set in different currencies. Be careful because with most banks, if you transfer an amount in one currency and the receiving account is set in another currency, that money will automatically be converted to the receiving account’s currency, thus incurring you a currency conversion fee and potentially an exchange rate which is not so good. To keep abreast of how the exchange rates are fluctuating, use Oanda, as I detailed in another post on this blog.

Other useful articles

• Money Saving Expert guide on foreign currency exchange
• Themeforest thread on PayPal withdrawals in Europe