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Suppose you need to make a transfer to a foreign bank to prepay a hotel stay or car hire, what’s the cheapest way to do it? Until a few years ago the only possibility was via your bank, but there are now plenty of financial institutions that specialise in foreign-currency transactions, at a competitive cost.

If you need to transfer money overseas to pay for a hotel booking, there are better options than using your bank. Credit: iStock

The basis for determining what you pay, and how much the Australian dollar is worth against any foreign currency, is the interbank rate, but that rate fluctuates. At 10.23 am on June 25, 2023, OFX, an Australian online foreign exchange and payments company, has the interbank rate for one Australian dollar at 60.96 euro cents. At 1:46 pm on the same day the OFX rate is 60.98 euro cents. The interbank rate can also vary from one financial service provider to another. At 10:25 am on the same day, according to Exchange Rates UK, the current interbank rate is 0.6130 euro cents to one Australian dollar, one-third of a euro cent above the OFX rate.

What if you wanted to transfer €1000 to pay for an overseas trip? How much would that transfer cost in Australian dollars? Below are some options, surveyed on June 25, 2023, and listed from lowest to highest cost.

Wise

To send a transfer of €1000 will cost $1638.41using Wise, a UK-based foreign-exchange financial technology operation. The exchange rate used is 61.33 euro cents to one Australian dollar, and Wise’s fee for making the transfer is $7.96. Wise has made rapid growth in the international financial transfer marketplace for its low fees. The Wise Travel Money card is the preferred option for many professional and leisure travellers.

Currency Fair

The cost of making a €1000 transfer is $1639.97 via Currency Fair. On its website, Currency Fair adds the rider that this figure is “approximate” since “This amount cannot be guaranteed due to exchange rate fluctuations”. The exchange rate quoted is 61.16 euro cents to the dollar and the transfer fee is €3 ($4.91). Although that fee is lower than the fee Wise is charging, Currency Fair’s interbank rate is less favourable, and therefore the slightly higher cost of the transfer.

Australia Post

Australia Post offers a convenient method for making transfers to a foreign-currency account via a partnership with Western Union’s international money transfer system. If you were to pay that €1000 to an overseas bank account using a POLi instant bank transfer from your own bank account, the cost would be $1640.82. Alternatively, the payment can be made using a debit or credit card for a small fee of $2.90.

AirWallex

A €1000 transfer using AirWallex will cost $1644.15. According to the AirWallex website, the rate is 0.61126 and the FX markup, the fee, is 0.5 per cent. Airwallex had its genesis in a Melbourne cafe established in 2015 by four co-founders. Frustrated at the fees charged by a remittances company that charged 7.5 per cent on purchases of coffee cups and lunch boxes from China, the tech-wise crew developed an international payments system that now services more than 100,000 companies around the globe.

PayPal

Using PayPal’s exchange rate calculator, the current rate is $1 equal to 0.5937 EUR. That’s a relatively poor exchange rate and sending €1000 via PayPal is going to cost $1684.35. That makes PayPal system a relatively expensive way of making an overseas payment, although it does offer the convenience of linking the payment to a credit or debit card and using that account to make the transfer.

St George Bank

The €1000 transfer will cost $1701.54. No details of fees and exchange rate are offered but assuming St George Bank is using the least favourable of the interbank rates, the OFX rate of 60.16 euro cents to one Australian dollar, the real cost of the transfer is $1662.23. Therefore the bank fee is $39.31. If the bank is using the same exchange rate as Wise, its fee is $71.10. Making the same transfer via Wise, the least-cost method, would save $63.03.

Commonwealth Bank

The cost of a €1000 transfer from NetBank is $1703.87. That suggests a slightly larger slice of the pie ends up in CommBank’s pocket than St George’s, a total of at least $41.64.

The takeaway

There are much better options than using your bank to transfer funds to an overseas account. Although this survey is limited to euros, that conclusion would be the same regardless of whether you’re transferring funds to a US dollar account, British pounds or Indian rupees. Banks might use the argument that they offer a more robust and secure platform for foreign-currency transactions. I can only speak from experience, and over a 10-year period using both Wise and Currency Fair and making more than 50 transfers to travel operators in Italy, France, Morocco, Poland and India of amounts of up to $15,000, I have yet to experience a problem.

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