The fee for transferring a sum of money overseas is said to be very low, but why is the amount received by the recipient so much less? The answer lies in the cost structure of low-rate international remittances . Many people only look at the superficial fees, ignoring the exchange rate difference and intermediary fees, and as a result pay more unjust money.
In fact, as long as you know how to break down the charge items, you can save a lot even if you only transfer a few thousand dollars. The following breaks it down for you item by item, so that you have a good idea the next time you go to a money changer to send money or a bank.
Understanding International Remittance Fees
The total cost of an international remittance, which usually consists of three parts: the exchange rate spread , the fee , and the intermediary fee . Charge ratios vary from one pipeline to another and can sometimes vary widely.
Exchange rate spreads are the most overlooked aspect. Banks or platforms tell you “no fees”, but the real-time exchange rate they offer in foreign currency may already contain profits, disguised as you’re already paying more when you exchange money.
The fee is a clear charge, some are calculated as a percentage of the remittance amount, while others charge a fixed amount. The intermediary fee depends on the remittance route, and if you go through multiple agency banks, each may deduct a fee, and the final payment received by the recipient will be discounted.
Quick List: Three Major Costs of International Money Transfers
- Exchange rate difference : compared to the market midpoint, it usually accounts for the largest proportion of total cost.
- Transaction fees : Charged by local banks or platforms, and may be calculated per transaction or per amount.
- Intermediary bank fees : International banking networks may charge fees on a per-bank basis, which are difficult to predict in advance.
The impact of intermediary fees will be more pronounced if you are making a small transfer. For example, for the exchange equivalent of HK$5,000 to the UK, the intermediary bank deducted HK$150, which is a 3% increase in cost, not counting the fees. So, understanding the cost structure is the first step to saving money.
How are transaction fees and exchange rates calculated?
The easiest way to figure out the fees and exchange rates is to figure out the “actual amount on hand”. Suppose you want to transfer HK$10,000 to Australia, Bank A says the fee is HK$50, but the exchange rate is HK$1 to A$0.19; On the surface, B seems like a bargain, but after calculation:
- Bank A: 10,000 - 50 = 9,950 Hong Kong dollars, which can be converted into 9,950 × 0.19 = 1,890.5 Australian dollars.
- Exchange Shop B: 10,000 × 0.188 = 1,880 Australian dollars.
As a result, Bank A paid AUD 10.5 more instead. So, don’t just look at the fee as a figure, consider the exchange rate together.
In addition, some platforms use a combination of “fee + exchange rate” for pricing, meaning fees are charged low but the exchange rate is earned back. The best way to compare different pipelines is to ask the other party to provide a “total cost quote,” which is how much the recipient will actually receive after accounting for all costs. The charges for international money transfers can be very transparent, as long as you ask.
The key to finding hidden fees
Hidden fees typically appear in these locations: exchange rate markups , intermediary bank debits , and collection line entry fees . Some receiving banks charge an additional deposit fee, which may be fixed or prorated, which is usually borne by the recipient, so it’s best to speak to the recipient before sending the money.
Additionally, some platforms will charge an additional surcharge if you send money out of hours or on a holiday. Furthermore, if the remittance currency is different from the receiving currency, it may involve two exchange, each with an exchange rate spread, which naturally increases the cost.
To avoid hidden fees, the best way is to opt for a money changer that offers transparent quotes , who will usually explain the total cost directly to you, without adding unknown charges in the middle. Also, if it’s a small remittance, try to choose a route that doesn’t go through an intermediary route to reduce the chance of being deducted.
Comparing remittance costs across different channels
Common remittance channels in Hong Kong include bank wire transfers, money changers, and online money transfer platforms. The cost structures of the three are very different, as compared below using a simple table:
pipelinehandling feeexchange rateSpeed of arrivalBank wire transferRelatively high, approximately HK$100-200There may be bonuses.1-3 business daysExchange ShopUp to no transaction feesClose to market priceFastest 1-2 daysOnline platformDepending on the amount, it may be lower.High transparency1-2 business days
From the table, the fees for bank wire transfers are generally higher, and the exchange rate may not be optimal. The advantage of a money changer is that the exchange rate is close to the market and the fees can be very low or even free. Online platforms are convenient, but be aware that their exchange rates contain hidden profits.
If you are sending a small amount, the fixed fee for bank wire transfers may account for a high proportion and is not very cost-effective. Conversely, Hong Kong money transfer companies or money changers, which can offer lower fees and closer to the market exchange rate due to scale effects, are more friendly to small remitters.
Which platform is the most cost-effective for small-amount remittances?
A small remittance usually refers to an amount under HK$10,000. At this point, fixed fees have the greatest impact, so fee-free or low-fee pipelines should be preferred. Money change shops are a good option because they usually do not charge fees, their profits come mainly from exchange rate spreads, and their exchange rates are close to the market, which makes the total cost lower.
In addition, some exchange shops offer RMB remittance services, which are lower fees than banks for people who need to remit money back to the mainland, and have dedicated personnel to follow up throughout the process to ensure that the money arrives safely. If you are near Tsim Sha Tsui, you might as well walk to the Tsim Sha Tsui money changer and ask for a price. They have been in business for over 10 years and are familiar with exchange rate trends and compliance processes and can quote instantly.
Remember, small remittances should not be greedy for convenience and randomly choose one, to compare the exchange rate and fees. Some platforms advertise “zero fees”, but the exchange rate is 2-3% worse than the market, which may be even more expensive than the pipeline that charges fees.
Which one is the cheapest in actual calculations?
Trial calculation is the most practical way. Suppose you need to transfer HK$8,000 to Canada, compare three channels:
- Bank A : Transaction fee HKD 120, exchange rate HKD 1 to CAD 0.17. Total cost = HKD 120, net amount = (8,000 - 120) × 0.17 = CAD 1,339.6.
- Exchange Shop B : No service fee, exchange rate 1 HKD to 0.172 CAD. Total amount received = 8,000 × 0.172 = 1,376 CAD.
- Platform C : Transaction fee 1%, exchange rate 1 HKD to 0.171 CAD. Net proceeds = (8,000 - 80) × 0.171 = 1,354.3 CAD.
Find exchange shop B for the highest amount, 36.4 Canadian dollars more than Bank A, which is almost HK$210. So, even if the fee is zero, the exchange rate is very important; even if a fee is charged, a good exchange rate may be more cost-effective.
You can ask the other party to provide a “total cost” quote, which is the amount actually received by the recipient after accounting for the exchange rate and fees, prior to remittance. This gives you a direct comparison of which is the cheapest. Also, note that exchange rates are floating and may vary from time to time, so the trial is best done within the same day.
Specific methods to reduce transaction fees
To reduce transaction fees, you can refer to the following methods:
- Consolidated remittances : If you’re not in a hurry, you can combine several small remittances into one large sum, reducing the number of fixed fees.
- Choose the right pipeline : Use money changers for small transfers, and compare exchange rates between banks and platforms for large transfers.
- Avoid busy periods : Some platforms charge surcharges at specific times, which can be saved by avoiding them.
- Use the local currency : If the recipient can accept Hong Kong dollars, you can avoid exchange costs.
- Keep an eye on exchange rate movements : Sending money when the exchange rate is relatively high in disguise saving money.
Also, if you need to send money frequently, consider building a long-term relationship with a swap shop, some of which offer better exchange rates. Most importantly, don’t be afraid of hassle, ask a few more companies, compare the quotes, and naturally you can find the cheapest solution.
Choose the most suitable remittance method
When choosing a remittance method, consider the amount, speed, destination, and your security requirements. If it’s emergency money, choose the fastest way to your account, such as an express money transfer from a money changer, which can arrive in as little as 1-2 days. For large transfers, pay attention to security and compliance and choose a reputable money changer recommendation .
Also, be aware of the foreign exchange controls in the recipient country. Some countries have strict restrictions on foreign exchange, and it is best to understand before sending money to avoid the payment being returned or frozen. A professional money transfer company will remind you of the relevant considerations and monitor the progress of the money transfer throughout the process to ensure that the payment arrives safely.
Finally, remember to keep the remittance slip for future reference. If there are any problems with the remittance, the slip will allow you to trace the transaction.
In summary, the key to low-rate international remittances lies in looking at the total cost and not being fooled by the apparent fees. Whether you have a small or large amount, you should compare exchange rates and fees to choose the pipeline that works best for you. EarthRemit has been in Tsim Sha Tsui for more than 10 years, providing remittance services to more than 30 countries around the world. To save even more, contact us or inquire via WhatsApp today for an instant quote and embark on your money-saving money transfer journey.
