Fees and Charges to Be Aware Of When Making International Bank Transfers
For B2B cross-border payments, international bank transfers (also known as SWIFT transfers or credit transfers) are a popular option. These transfers are extremely expensive, despite being reliable and safe. There are several fees and, even worse, hidden expenditures to consider, all of which pile up over time and can have a significant impact on your company’s bottom line and cash flow.
In this short essay, we’ll go over the fees and charges that come with interbank transactions. Many of these fees are hidden because banks refuse to notify you about them! Take a look at the list below before you spend any more of your hard-earned cash.
1. Charges for transfers
When moving funds internationally, every money transfer company will charge you a service fee. This could be a single price, a tiered cost, or a percentage of the amount being transferred. Banks can charge anywhere from 3% to 5%, and occasionally much more. Naturally, the bigger the amount being transferred, the greater the fees will be. Some banks charge varying rates based on the currency in which your money is transferred, so you may wind up paying a greater fee if you send money in a currency other than your destination’s local currency, such as sending AUD to a US recipient. You may have to pay an extra fee if you want your money transfer to be expedited.
Banks carry out wire transfers using their own currency exchange rate, which is always higher than the actual (market) rate. Furthermore, they frequently use a tiered charge system, so the exchange rate margin is dependent on the size of the transfer. This “markup” fee is typically the least obvious (hidden) component of your total transfer cost. See #3 for more information.
Finally, many banks charge a “rapid send premium” for same-day transfers, which is analogous to same-day shipping fees. You could be charged as much as 10% more than the original transfer amount.
2. Bank intermediation fees
Every foreign transaction in interbank transfers is charged a fee by both the sending and receiving banks. The amount of the transfer is additionally increased by the fees charged by intermediate banks.
On its way to the recipient’s bank, every international wire transfer passes through one or more intermediate banks (usually 1–3). This normally runs from $10 — $20 (USD) (USD). It can also go up to $30 (USD) (USD). It rarely falls below $10.How about other means of money transfer? Most charge flat rates that are significantly less than those charged by interbank transfers. Wallex, an international money transfer business, for example, charges a bespoke cost based on the demands of its customers. In Singapore, Indonesia, and Hong Kong, Wallex is licensed and controlled. As a result, it’s an ideal choice for expanding enterprises in these areas.
3. Currency exchange markup
Simply explained, the currency exchange rate is the cost of converting one currency into another. To check the conversion rate while sending money abroad, you must first select the source and destination currencies.
Many companies are unaware that the exchange rate they pay for interbank transactions is not the same as the “true” rate. This second rate, also known as the market rate, interbank rate, or mid-market rate, is similar to a wholesale rate that is only available to major financial organizations such as banks that buy huge amounts of currency. This is also the rate that banks pay each other when exchanging money or trading.
When transferring money internationally, however, the bank will provide a different rate and charge costs for currency conversion. The spread, also known as the exchange rate markup, is the difference between the two rates. This hidden markup accounts for a significant amount of your total cost. The exchange rate margin is much larger for smaller sums, so if you transfer little sums regularly, you will end up spending much more than you planned.
Most major banks charge between 0.7 percent and 1.5 percent, so if you’re sending $10,000, you could be charged up to $150. It is interesting to observe that certain remittance service providers who claim to provide the ‘trade balance’ or the ‘mid-market rate’ add in the currency mark up to their transfer fee or service fee. So, though you may have competitive rates, you may wind up with substantial transfer expenses.
Here’s how to tell if your exchange rate has a hidden cost:
- The mid-market exchange rate for SGD/IDR is 10,702.71.
- (To buy 1 SGD, you’ll need 10,702.71 IDR.)
- 1000 SGD (Singapore Dollars)
- 10,702,710 IDR is the amount expected to reach the receiver.
- The exchange rate between SGD and IDR in a bank is 10,500.
- The receiver received a total of 10,500,000 IDR.