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What is an international money transfer?

An international money transfer, or remittance, is when you send currency from country to another. The currency you send is converted to the currency of your choice, but is most often converted into the official currency of the recipient's country. If you were to send Canadian dollars to India, for example, it would be converted into Indian rupees before being received.

What does an international money transfer cost?

There are two costs you have to pay when you transfer money internationally.

The first is a simple fee for using a money transfer service. The most expensive transfer option, an international bank transfer, can cost as much as $50 or more. The least expensive option is with an international money transfer company. They often charge $10 or less.

The second cost is the markup. The difference between the value of the Canadian dollar and other currencies is called the exchange rate. As the value of every currency changes every day, the amount you'll receive will also be different.

Money transfer companies (as well as banks) make money by charging a markup on the interbank exchange rate, which is the rate that banks convert money with each other. Every company determines its own exchange rate, which is why it's important to take both the rate and the fee into account when you're comparing services.

Example Transfer

When transferring money, you have three options: you can look for the best exchange rate, the lowest fee, or a compromise between the two. Let's see how each of those affect how much money your recipient gets.

Transferring $1,000 CAD to the Philippines

  Best Exchange Rate Compromise Lowest Fee
Exchange rate, $1 CAD = PhP40.56 PhP40.27 PhP39.88
Fee $11.67 $6.99 $0.00
Amount Received PhP40,092.80 PhP40,268.00 PhP39,879.21
Total Cost to Sender 1011.67 1006.99 1000
After-fee Exchange Rate PhP39.63 PhP39.99 PhP39.88

For the best exchange rate, you'll pay the highest fees. So while it seems like a good idea, as the rate is the best, you actually lose a bit of money. For the lowest fee option, you'll pay no fees but have the lowest exchange rate as well. The compromise option gets you a better exchange rate and a lower fee, but you have to pay both.

In the end, the best option for sending $1,000 to the Philippines is to compromise between the best rate and the lowest fees. The effective exchange rate (how much you actually paid versus how much the recipient actually gets) is actually the lowest for the best exchange rate option!

This will not always be the case. There are a lot of factors that go into the calculations – that's whywe put together our comparison chart.

How to save money on transfers

1. Know what the interbank rate is

As the interbank rate is what banks convert with each other, you'll never get it. The companies that convert money will always charge a premium for converting money for you – however, if you don't know what the rate is, you're at risk of being taken advantage of.

2. Compare companies to find the best combination of the lowest fee and best exchange rate

Some companies, like Transferwise, have very good exchange rates that are extremely close to the interbank rate. However, they also charge a fee as a percentage of the amount being transferred. While the rate may be amazing, you'll have to pay a higher fee, which could cancel out those savings.

On the other hand, some companies like OFX don't charge a fee at all (so long as you go to their website through ours), but have a less favourable exchange rate. Sometimes a higher fee can mean saving more on the rate than the fee costs.

We do the work for you, so all you have to do is pick whichever number is the highest!

3. Take advantage of limit orders and forward contracts

While sometimes you want to transfer money right away, there are times where you can afford to be patient. Some companies allow you to make a limit order, forward contract, or both.

A limit order is when you tell the company that you want to transfer $X amount, but only when the exchange rate is better. You set the price you're willing to pay for the transfer and wait. If the exchange rate is met, you'll trigger the transfer automatically. Because the value of a currency typically doesn't have large fluctuations day-to-day, you can be waiting for a while until the target rate is met. If the rate is never met, you don't lose any money – but the transfer is never completed.

A forward contract is when you tell the company you want a certain exchange rate, but you don't want to transfer the money right now. It's essentially "locking in" a rate, which you can then use later.

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