From Money Magazine, November 2006
If you've sent or received the message "send money immediately" you'll know the problem here's how to get the cash moving fast.
Losing a credit card or cash is a traveller's nightmare. According to Western Union's Angela Heng, it's a major reason Australians send currency overseas. But there are plenty of other reasons to transfer currency offshore, from poor budgeting by holidaymakers in urgent need of funds, to paying for goods you've found on overseas websites.
Modern technology has created a variety of methods for shifting cash around the globe:
- Internet transfer
- Telegraphic transfer
- Instant money transfer (IMTs)
- Credit card payment
Then there are the old-fashioned "drafts" (foreign currency cheques). The trick is to choose the quickest, most efficient and cheapest option. For speed, ease and value, it's hard to go past the internet. It offers 24-hour access for money transfers between accounts. It is also the simplest, cheapest and almost fastest method of sending cash overseas.
Generally speaking, "own institution" transactions such as a transfer from one ANZ bank account to another, is almost immediate. For transfers to other banks, allow at least 24 hours. Internet transfers are not only fast, they shouldn't cost a lot in bank charges with some accounts there may be no cost at all. "The so-called all-you-can eat transaction accounts, come with a flat monthly fee for unlimited own-institution transactions," says Anthony Sexton, financial analyst and sector manager with Cannex.
"Shifting cash to accounts with different institutions may not cost a cent either, if this is included in the free transactions per month," says Infochoice's Denis Orrock. "If not, this charge may range from 20 to 65 cents per transaction."
Of course the recipient has to have access to an account overseas. And don't forget that the cash-strapped recipient will still pay a fee (averaging $4 to $5) for an ATM withdrawal. Some institutions add a foreign currency conversion fee representing 1.5 to 2.5 percent of the transaction amount.
Sexton says overseas ATM withdrawals are often limited to between $800 and $2000, but there are no limits on foreign currency transfers. But cash dealers are obliged to report transactions over $10,000 to government watchdog AUSTRAC.
If your overseas contact doesn't have an Australian bank account, another option offered by many Australian financial institutions is a telegraphic transfer, sometimes called a wire transfer. Cannex says fees range from $20 to $30 per transfer, and you should allow three to five working days for the cash to hit the foreign bank account.
"There may be other fees charged by overseas banks, due to transfer costs of banking in that country," says Sexton. In some cases American banks charge $US25 in transaction expenses.
As well as foreign currency conversion fees, foreign exchange (FX) rates used with wire transfers can add to the cost. Many financial institutions offer reasonably up-to-date foreign currency information and some have foreign exchange calculators.
With international money transfer (IMT) services such as Western Union and MoneyGram, customers don't need a bank account. It's also possible to transmit currency within hours (minutes even), depending on time zones. Western Union covers 270,000 locations in more than 200 countries and territories.
The recipient doesn't need a bank account, just some ID (such as a driver's licence) to prove his or her bona fides. In Australia there are 4900 Western Union locations typically Australia Post outlets, newsagents, American Express offices, cash converters and foreign currency exchanges. Destination and the remittance amount are the major factors when calculating fees.
For example, with a newsagent on the Central Coast of NSW, the fee for sending $1000 to the US is $70. For $5000 it's $225. The exchange rate applied would have paid out $US7350 for $A10,000 (excluding the fee).
As well as the big guns, smaller, community-based cash dealers also offer Australians and overseas visitors the service of shifting money offshore. Typically, an operator focuses on particular regions, countries or ethnic groups.
Despite the explosion of electronic remittance systems, old-schoolers can still use drafts (foreign currency cheques). Offered by the banks and foreign exchange specialists such as Travelex, fees range from $15 to $40 plus sea or air postage. Clearance takes five to 10 working days. According to Travelex, "Drafts are now mainly used to pay for online purchases such as eBay, subscriptions or deposits for hotel accommodation."
Cards can be cheaper
Cannex's Sexton recommends using credit cards for overseas payments. "For small transactions it may be one of the most cost-effective methods" he says. "Typically [card transaction fees] range from 0-4 percent."
For extra security, there are online payment companies such as PayPal. Used primarily for eBay and other transactions, it's free to sign up. The money from a PayPal balance, credit card, debit card or bank account is sent instantly to anyone with an email address.
According to www.paypal.com.au there are no sending fees but the exchange rate includes a 2.5 percent fee. Overseas vendors or account holders might pay withdrawal or "return fees" levied if an incorrect bank account is used for a withdrawal. In India, an $8 withdrawal fee applies as well as return fees of $20. There's a $225 minimum withdrawal.
For the complete story see Money Magazine's November 2006 issue. Subscribe now.
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