Whether you are travelling overseas or transferring larger sums of money between bank accounts in different countries, dealing in multiple currencies can be a hassle, not to mention expensive.
Why is it so expensive? Because banks and credit card companies charge users high fees to help them convert between currencies. Understanding how to reduce the costs associated with using your bank card abroad or transferring money between foreign bank accounts will help you save more of your hard-earned dollars.
In a previous article, "How to get the best exchange rate", we discussed the best ways to secure a good and fair exchange rate when making an international money transfer. But the exchange rate is only part of the equation. Learning how to avoid unnecessary foreign exchange fees can go a long way towards saving you cash that could be better spent elsewhere.
Foreign transaction fees for international money transfers
In addition to hefty exchange rate charges, using your bank to transfer money overseas will also incur high foreign transaction fees. These fees are not always explicit and can come in multiple forms:
Foreign transaction fee
This is the fee the bank charges to send your money internationally. These fees can range anywhere from $5 to $35 Australian dollars depending on the bank you use.
Correspondent/Intermediary Bank fee
When sending an overseas wire transfer with your bank, if the bank sending the funds does not have a direct relationship with the bank the money is being transferred to, there is a need to use an intermediary institution to pass the funds through. This bank sits in the middle of the transaction and is known as a correspondent, or intermediary, bank. When a correspondent bank is involved they often deduct a fee, which can range from $25 to $75, before passing on the funds to the receiver bank.
To top it off, the receiver bank usually charges a fee to accept and process an international payment. It is not uncommon to see a bank charge anywhere from $10-$35 to process a wife as a deposit into your account.
These are the fees banks levy if they are required to provide any additional services for your money transfer. You would be charged extra fees for reasons like communicating with the bank after initiating the transfer, cancelling the transfer or amending the wire details.
How to avoid foreign transaction fees for international payments
- Don't use your bank
- Choose a currency transfer specialist who doesn't charge any transaction costs. At FlashFX, we promise fair and transparent exchange rates and never charge foreign transfer fees.
Foreign transaction fees from using your credit card overseas
Anyone who has travelled internationally or purchased items online in a foreign currency is familiar with those pesky foreign transaction fees that are applied to every purchase made on your credit or debit bank card.
Many customers don't realise that 'foreign transaction fees' are actually made up of multiple fees in one when you use your credit card overseas. Understanding the various sneaky fees levied by your card companies and associated payment networks will help you avoid them in future, saving you a lot of money.
Foreign Transaction Fee
These charges are usually a combination of charges assed by the card network (Mastercard, VISA, Amex) and a fee that your credit card issuer (CBA, Citi, etc) charges on top of that. The average international transaction fee is around 3%, with about 1% of that fee going to the payment processor and the other 2% going to the bank.
Currency Conversion Fee
This is where the bulk of the extra charges you see on your statement come from. It's the fee charged by your card issuer to convert your Australian dollars into foreign currency. It can range between 2.5%-4.0% of the value of the transaction.
How to avoid credit card foreign transaction fees
- It might seem obvious but the best way to avoid these fees is by not using your credit card overseas! You'd be better off either bringing local cash or using a currency transfer specialist like FlashFX to send money rather than using your credit card. When booking your hotel or purchasing a large luxury item, always ask the vendor if they will accept direct payment to their bank account. If they do, use FlashFX to make a bank-to-bank transfer with zero transaction fees and great exchange rates.
- Look to use a credit card that doesn't charge international transaction fees. Check your current card's terms and conditions or apply for a new credit card that doesn't charge these fees.
- Be aware of dynamic currency conversion fees. These crop up when the merchant gives you the option to pay in the local currency or your own currency (AUD). While paying in Australian dollars may be more familiar, always refuse this offer. Choosing AUD will result in the merchant charging you an exchange rate to convert your money, rather than the bank. Many merchants charge ridiculously high exchange rates - as much as 7.0%!
Foreign Transaction Fees at the ATM
When travelling overseas you may need to access cash by withdrawal money from at a foreign ATM machine. ATM withdrawal fees vary but if you're not careful you could be paying fees for using an overseas ATM twice.
For starters, you will be charged the overseas ATM fee, which is levied by your bank for using an ATM outside of their network in another country. Unless your bank as a global ATM alliance that allows you to make international withdrawals for free, you could also be charged a local ATM owner's fee for using their machine for an international transaction.
How to avoid foreign ATM transaction fees
- Use an ATM connected to your bank
- Find ATMs that don't charge local owners fees
- Never withdrawal money using your credit card
- Use ATMs attached to banks. ATM fees at bank ATMs tend to be much lower than ATMs at the airport or inside of convenience stores.
- Withdrawal large amounts at once. Minimising how often you need to withdrawal cash will ensure you pay less in ATM fees
A little prep work could save you hundreds
Taking the time to get organised with your money before travelling overseas or making a large international money transfer could save you hundreds of dollars on unnecessary foreign exchange fees.
At FlashFX, we believe that exchanging money between countries doesn't have to break the bank. Check out our website today to learn how you can avoid foreign transaction fees and secure great exchange rates for your next money transfer.