Mozo guides

Overseas Money Transfers 101

International Money Transfer (IMT) is a way of electronically transferring cash to a foreign country. You can use it to pay foreign contractors, to put money into your or someone else's foreign bank account or to fund an extended stay or permanent move abroad.

If you need to move money overseas, don't assume that directly approaching your local bank branch is the smartest way to go. Banks exchange rates have a large profit margins built in so, especially for larger, sums you'll probably be better off going through a specialist foreign exchange broker or provider.

To make sure you get the best value on any international money transfer, make sure you compare quotes with Mozo.

When do you need to use a foreign exchange or IMT provider?

Which form of International Money Transfer you could decide to go with will depend on the size of the transfer you need to make. For small exchanges such as purchasing an item from a foreign retailer website or eBay a one off credit card or PayPal payment may suffice. However when it comes to larger sums like overseas living costs, an international money transfer via a specialist international money transfer or foreign exchange broker is likely to be a lot more cost effective.

Do Australians get a bad deal on foreign exchange transfers?

According to a survey from the World Bank, sending money overseas costs more from Australia than just about any other wealthy country. Research has shown that Australians pay and average of 10 per cent on a transfer of $US200 ($A221), which is the standard transfer used to make the international comparisons. By comparison, the average amongst the world's eight largest advanced economies is 8.44 per cent.

Should you use a bank or a broker for your overseas money transfer?

Generally speaking, it is more cost effective to use a specialist foreign exchange broker than a bank for international money transfers. Brokers tend to offer more competitive exchange rates, and lower fees for their service than banks that rely on an existing customer base that don't know any better.

If you use a bank for your IMT, expect to be hit three times with charges; first, a sending fee (around $30) then a receiving fee ($25-50) and in transit, a budget-breaking exchange rate margin that will scoop off an extra couple of percentage points of the total you're transferring into bank coffers on the way through. If it's more than a small once off, choose a broker.

Banks will usually apply an exchange rate between three or four percentage points worse than the interbank rate (the rate at which banks sell currency to each other) while a foreign exchange broker will usually keep this margin below one percentage point. That's a difference of $3,000-$4,000 on a $100,000 transaction.

By comparison, brokers will usually keep their cut below 1% of the total being transferred and can also offer a range of currency exchange contract options to help you time your transaction to get the best deal.

You can trade at the going daily rate (spot price) or arrange a forward contract meaning you can pay a specific price at some point in the future or options, which for a fee gives you the option but not the obligation to buy currency at a particular price up till a pre arranged point in time.

How do I make a payment from my bank to a foreign bank account?

If you've decided to use the bank rather than a broker, it's pretty easy to make a payment to any bank account in the world, just through your internet banking. Internet banking is usually also a bit cheaper than doing it at a branch where you'll likely be hit with extra service charges.

You may need to apply for access, but as your bank already has your details it's usually a short process, just fill out you banks Overseas Telegraphic Transfer Access form and allow a couple of business days for processing.

Then you should have International Money Transfer access from your internet banking. Then all you need are the recipient's details and their banks unique identifying SWIFT/BIC code, which you'll find through a quick search of your recipient banks website. A SWIFT code is a unique identification code for a particular bank consisting of 8 or 11 numbers and used to transfer money between banks via international wire transfers.

If you're likely to be using IMT on a regular basis it may be worth seeing if you can get a more competitive deal from a specialist foreign exchange provider - compare them here on Mozo.