Finding the best value when sending money abroad

Consumer Reports

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If you frequently send money internationally, it may be comforting to know that federal regulators have strengthened the rules governing money transfer companies such as Western Union.

The new rules, issued by the Consumer Financial Protection Bureau, require companies to disclose more information, such as third party fees, and to try to recover money that goes to the wrong place as result of a mistake by the customer. The new rules come six months after a major revision to the law regulating the industry went into effect, requiring, among other things, certain disclosures and error resolution procedures.

But the latest changes stop short of requiring companies to provide customers with the so-called effective exchange rate, which takes into account the amount of foreign currency a company will deliver to your recipient and the fees you'll pay. The number makes it easier to comparison shop for the best value when transferring money to a different currency.

But you easily can calculate the number yourself or use a helpful online tool that will do it for you.

Why comparing is difficult
It can be hard to find the best value among money transfer companies because their charges contain separate components, just like a home mortgage has an interest rate and upfront fees that vary by company. First, there's the fee for sending the money, which might be $5 to $10. (There also may be additional backend fees when the money is picked up, though that's less common.) Then there's the exchange rate, the amount of foreign currency that will be delivered for every dollar you send, for instance 1 dollar = 12.49 pesos.

The problem is that different companies often have different fees and exchange rates. If one company has a higher fee and lower exchange rate than another, it's easy to figure out that the other company offers the better value. But that's often not the case. For example, for sending $100 to Mexico, the transfer company Xoom recently had a fee of $4.99 and an exchange rate of 12.49 pesos per dollar, delivering 1,249 pesos for $100 US. At the same time, Wells Fargo was charging a higher fee, $7.50, but had a lower exchange rate, $12.55 per dollar, delivering 1,255 pesos for $100 US.

So which is the best value: Xoom, which its lower fee, or Wells Fargo, with a higher number of pesos delivered for your $100?

How to compare
The trick to figuring that out is to calculate and compare the effective exchange rate for each company. The one with the highest number is the best value.

Calculating it on your own is easy:

  1. Add any fees to the amount you're sending, including backend charges, if applicable:

    Company Amount you're exchanging Exchange fees Amount you need to pay
    Xoom $100 $4.99 $104.99
    Wells Fargo $100 $7.50 $107.50

  2. Divide the amount of foreign currency the service will deliver by the results:

    Company Amount delivered
    (per 100 $US) Amount you need to pay Effective exchange rate
    (pesos per $US)
    Xoom 1,249 pesos $104.99 11.90
    Wells Fargo 1,255 pesos $107.50 11.67

In this case, Xoom, with a higher effective exchange rate, 11.90, is the better deal.

Keep in mind that the amount you're sending can affect the outcome. If you were to do the same calculations for sending $2,000 instead of $100, Wells Fargo would be a slightly better value. Also, companies usually change their exchange rates at least daily. So the company that offers the best deal for a given transaction can change depending on when you're sending the money.

Useful online tool
If you're not comfortable doing the calculations, use Viamerica's free effective exchange rate calculator, which lets you compare up to four different services. We recommend using it in manual mode: On the webpage, select "Manual Comparison" on the upper left corner and then fill in the required information. You'll need to get the current exchange rates and fees from each of the services you're considering using. Viamericas will fill in its own automatically.

Other options
There are two other ways to comparison shop as well.

The first is to find out the fees from a variety of service providers and, in each case, deduct them from the amount you want to send (For example, $100 - $7.50 = $92.50) and plan on sending the difference. The service that delivers the most foreign currency for the remaining amount is the best deal.

The second alternative is to find out how much services would charge you in total to deliver the same amount of foreign currency (for example, delivering 1,255 pesos will require you to shell out a total of $1004.99). The service with the lowest total cost is the best value, but only for delivering exactly 1,255 pesos.

Of course, value is not the only thing you should consider when selecting a money transfer company. For example, if your recipient will be picking up the money (instead of its being sent to bank account), you'll need to know if a service has locations close to where your recipient lives or works.

For more information about sending money internationally and selecting a money transfer company, read "The Best Ways to Send Money Abroad."


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