According to the U.N. International Organization for Migration’s 2024 World Migration Report, there were 281 million international migrants in 2020 (about 128 million more than the 1990 records), accounting for 3.6% of the total population at the time. The global migrant population accounted for US$831 billion in international money transfers in 2022, with low- and middle-income countries receiving US$647 billion, according to the report.
The more migration trends maintain upward progression, the larger the international money transfer market becomes. In fact, the global international money transfer market is expected to reach US$1.3 trillion by 2032, according to Allied Market Research.
Clearly, it’s a very profitable market.
Unsurprisingly, some providers take advantage of the huge demand to insert exorbitant fees into their services, making it more burdensome for people to send money to their loved ones.
Today, we will address the concepts influencing international money transfer fees and provide practical pointers on how you can minimize transfer costs when sending money to your loved ones abroad.
First, let’s take a quick look at what transfer fees entail.
What Are Currency Exchange Costs?
Fundamentally, currency exchange costs are fees incurred when processing international money transfers.
Exchange costs often comprise:
- Exchange rate spread: This is the difference between the buying (ask price) and selling (bid price) rates of a currency. Spreads may differ depending on the financial institution and exchange market used.
- Service fees: These are fees a provider charges for processing the transfer through their platform. Service fees include transfer fees (flat or percentage-based) and conversion fees charged by banks and money transfer gateways.
- Hidden charges: These are fees that some providers do not make apparent but deduct from the transaction without the customer’s knowledge. These fees are sometimes added to cushion the effects of sudden changes in market rates.
Key Factors Affecting Currency Exchange Rates
Exchange rates are usually what determines the final cost of your transfer and what gets to the recipient.
Various factors affect exchange rates, including:
- Market fluctuations: Currency rates are subject to frequent fluctuations due to various market factors, including inflation, daily market performance, and speculations, which could affect international money transfer costs instantly.
- Central bank policies: A central bank may raise interest rates on its currency, leading to a higher exchange rate as investors hold on to the currency for higher returns. Some central banks may choose to manage exchange rate fluctuations by buying and selling their currency directly in the market.
- Demand and supply dynamics for the currency: Exchange rates are usually higher when the demand for a currency is higher than the supply. The reverse is the case when supply is higher.
- Exchange rate margin vs. actual rate: This is the difference between the exchange rate advertised by a provider and the rate the provider actually charges—that is, the rate you receive.
Although the effects of these factors on currency exchange costs seem constant, they can be minimized to some degree.
Strategies to Minimize Currency Exchange Costs
Below are some strategies you can adapt to minimize international money transfer costs.
Choosing the Right Transfer Method
Compare the various international money transfer methods, including bank transfers, online platforms, peer-to-peer services, money orders, and other channels available and accessible to you.
Online platforms, especially mobile apps, are currently the most preferred method of sending money abroad. You can look through a comparative list of mobile apps to send money abroad. The list provides a concise look at the popular platforms, their fees, and transfer speed.
Choosing the right transfer method is the necessary first step to saving substantial money on transfer fees in the long run.
Researching Providers
The first provider you come across might not be the best one for you or for sending money to your target country, in general.
Find different providers and services worth considering, focusing on those renowned for delivering to your target region. Then, compare them across key features to find the best fit.
Considering Key Factors
Some key features to consider when researching providers include service fees, exchange rates, and transfer speed.
Also, do due diligence by researching select provider’s services, including customer support, to determine their reputation, reliability, and overall quality of their services.
This is to ensure that you get top-quality international money transfer service while enjoying the best rates.
Monitoring Exchange Rates
If you plan to do a lot of international money transfers, it’s better to be a bit of a financial market expert.
First off, monitor exchange rates so you’re the first to know when exchange rates are favorable. You can do this by subscribing to notifications from financial news sources like MarketWatch, Bloomberg, and Financial Times.
Monitoring exchange rates is a great way to cut down transfer costs substantially.
Using Loyalty Programs
Opt for a service provider offering different promos and loyalty programs to help customers save costs.
If you send money frequently, these offers and programs could easily save you thousands of dollars over time.
Timing Your Transfers
As with stock market rates, forex rates often fluctuate and are sometimes very volatile—depending on the currency you are exchanging.
Consider timing your exchange rates to beat the effects of rapid fluctuations on transfer costs; set a forward contract with your provider to process the exchange at a predetermined rate. The transfer would be automatically initiated once the terms are met.
Calculating Total Costs
Use exchange rate calculators and other transparency tools provided by some services to determine the actual amount you are being charged.
For instance, you may find that while a provider offers lower service fees, they have higher exchange rates; another may offer lower exchange rates but higher service fees.
Calculating the total cost (service fee + exchange rate) of using either provider will show you which service is truly cheaper.
Conclusion
The global international money market is growing at a rapid rate. Still, customers sometimes find themselves frustratingly paying exorbitant fees when sending money abroad.
You can substantially cut down on these fees by applying some practical strategies, including researching providers and services, monitoring exchange rates, using loyalty programs, timing your transfers, and calculating total costs across providers.
Applying these strategies could easily save you thousands of dollars over time, especially if you send money abroad frequently.