The Best Ways To Transfer Money Abroad In 2022
It’s been a topic of consternation for decades now, but not much has changed when it comes to using the foreign exchange services provided by big banks. Back in the day, sending money overseas used to cost the service provider a lot of money. It was not nearly as simple as it is today, as banks had to be in touch with their counterparts in other countries directly.
This meant that customers had to pay up if they wanted to send money abroad, accepting that it would take some time to get there. The internet came and you would have expected it to change all that. However, banks had no impetus to start charging less for transfers. Nor did they have any reason to improve their processes.
The problem is not just that these transfers are a little more expensive. Every single transfer you send through a big bank has a chunk taken out of it as fees and commissions and it does not end there. If you’ve sent money overseas through a bank, you may have noticed that the exchange rate they offered you was not the same as the one you found on Google. This is not because Google got it wrong.
The figure you find on Google is called the mid-market rate. It is the one that every bank will get. Why do they not give you this rate? Many banks hide extra fees in the exchange rate. They make the transfer at the mid-market rate, giving you an inferior rate to increase their own margins.
In the US, more money is sent to Mexico every year than anywhere else. How do the banks’ old-fashioned systems affect the people sending this money?
The cost of sending money to Mexico
In 2021, a record amount of US$51.6 billion was sent to Mexico by people in America. The people sending money are generally either migrant workers or Mexican-Americans with family still in Mexico. The money sent makes a huge difference to the lives of people living there, with one town reportedly functioning entirely off remittances sent from the US.
You can imagine that there would be a lot of money in fees taken from these remittances. However, the amount will surprise you. According to the World Bank, a full 4.1% of all the money sent to Mexico in remittances goes on fees. That is equal to more than $2 billion in 2021!
There is clearly a need for alternative solutions. Fortunately, there are a number of companies remedying this problem, which many Mexican immigrants can benefit from.
The best way to transfer money abroad
Since the early 2010s, a number of startups have emerged in the international money transfer sector. These are companies that sought innovative ways to send money internationally. Many of these companies started up in the UK, although a fair number began in the US, initially making it extremely easy to transfer money from the USA to the UK and vice versa. Nowadays, sending to just about anywhere is easy.
Companies like Wise (formerly TransferWise) aimed to provide people with cheap and quick ways to send money to other countries. They did so by improving transparency about just how much was paid in fees, using cheap means to send the money, giving the best possible exchange rates, and taking very small margins. Money transfer went from being expensive to costing almost nothing.
Many more companies have come up since Wise first started offering solutions, creating an excellent environment for competition in the industry. This has only served to provide customers with more options and better prices. In 2022, you have a range of companies to choose from.
Using a money transfer service to transfer money from the USA to Mexico comes with other benefits as well. People sending remittances have to deal with changing exchange rates. The peso does not fluctuate too dramatically against the US dollar, but with the scale of months and years of transfers, those fluctuations can make a big difference.
International money transfer companies provide the feature of fixing the current exchange rate for a prolonged period, meaning that each future transfer during that time will get the same rate. This provides the people receiving remittances the peace of mind that they won’t get less than they expect.
You can choose Wise as the company to send your remittances home, as they operate in the US. Alternatively, you can rely on any one of these 5 best rated services for transferring money from the USA abroad. They each provide excellent exchange rates, low fees, and total transparency.
However, not everyone can use an international money transfer service to send remittances home.
Who can use international money transfer services?
If you have a US bank account, you will have no problem using a service like Wise to transfer money abroad. You simply have to use their online platform or mobile app and send money straight from your account. But what about if you have cash?
Many remittance workers do not plan on staying in the US for the rest of their lives and do not get bank accounts. For some, getting a bank account is simply very difficult due to bureaucratic processes. For this reason, they earn in cash and send that money home through remittance services.
Unfortunately, modern money transfer services do not deal in cash. The reality is that cash comes with many more risks and more requirements when it comes to processing. It cannot be processed through the streamlined services provided by money transfer companies.
Are there alternatives?
For people who cannot use money transfer services, are there alternatives? At present, there are no perfect ways to send cash back to Mexico. It will continue to cost far more than if you were to send from a bank account. That is unlikely to change in the near future.
If it is bureaucratically possible, consider what it might take to get a US bank account. If it is going to cost you to set one up, remember that you are likely to save a lot more in future if you do so.
There is always the possibility of asking a friend or family member with a US account to receive your pay and send it to Mexico. However, you will need to keep in mind that this might have implications for them in terms of taxation. They may also have to explain this source of income to financial services regulators.
Alternatively, you can ask them to send the money through a money transfer service and pay them in cash. This does require a lot of trust on the side of both parties and is far from ideal.
The good news is that you don’t have to continue paying huge fees if you have a US bank account. This can go a long way towards minimizing the huge costs paid by remittance workers sending money to Mexico every single year.
