Crazy high currency exchange fees: How to stop the banks from taking advantage of you

If you’re like me who travel often, or perhaps you have lived in different areas around the world, you constantly change money. Every time you do, the banks try and take from you as much as they can get away with.

The fees they charge you when you exchange money are hidden. You don’t see currency exchange fees easily.

Banks charge as much as 13% fees on a round trip exchange

So let’s say you are moving countries and you sold your house in one country and bought in another. $200,000 house, transferring from London to New York, or from Sydney to San Francisco. How much do you pay the bank when you wire the money?

You might be shocked to discover that the fees are as high as 13%.

That’s on a round-trip exchange, meaning if you changed the money then changed it back you would lose 13%. Of course you’re not going do a round trip exchange, but it gives you the idea of how much the banks are making. The average fees are around 7% round-trip or 3.5% one way.

This means that on your $200,000 house you just paid $7,000 to the bank to transfer the money for you.

Check how much they charge above the “inter-bank” rate

The rate the banks pay when exchanging money is called the “inter-bank” rate. This is the rate the banks pay when they are trading with each other (usually a few million dollars per trade).

This is the “true” exchange rate. The banks make a margin on top of this, and give you their exchange rate with the fee included.

Usually they do not disclose the fee, they just disclose the rate that you get to exchange.

The reason why they charge so much is because this is a hidden fee. You don’t see the fee because you just see how much foreign currency you received when exchanging.

Here are some fees from wire transfer exchange with popular banks in the US, Australia, the UK and Canada

The table above represents the rates you receive if you were to wire money into your bank account, for example in another currency.

This is probably what would happen if you sold a house in one country and bought another house in another country. It’s not the rates you receive when exchanging cash over the counter in the bank (although rates for both situations are usually very high).

I included PayPal in the table above. Although they are not a bank they are a popular option for international transfers. You will notice that the fees in the US are a bit more reasonable than the UK, Australia and Canada. But still, even the Wells Fargo currency exchange rates of 2% round-trip (1% one-way) is a lot of money to pay when there are other lower cost options.

How to avoid these exorbitant fees

There are several options for avoiding these fees, but it really depends on how much money you are exchanging and which currencies you are exchanging.

If you’re transferring $5k to $100k, you can avoid the fees and pay only around 0.5% by using any one of these currency exchange companies:

• Wise, formerly TransferWise – charges 0.5% one way or 1% round trip. They seem to be able to facilitate a transfer even if you do not have a bank account in both countries (but I have not confirmed this). The other alternatives on this list will need you to have a bank account in your name in both countries. Wise will definitely still need the sender to have bank account and will need the sender to verify their identity with a copy of a passport or similar documentation.
• OFX – charges usually 0.5% one way or 1% round trip
• CurrencyFair – charges usually 0.5% one way, they also have a marketplace where you can trade with other people directly. (Note: 10 free transfers with CurrencyFair if you use the link)
• xe.com – fee varies depending on the currency
• Curexe – offers a transparent 1% cost on currency exchanges and goes down to .4% on higher volume transactions. They have awesome customer service because you can get a direct line to the founder 24/7.

The way that these services work is that you transfer (via wire transfer usually or ACH in the US) to their bank account and then they will wire or direct transfer to you in the exchanged currency.

Usually this means you need a bank account in the two different currencies.

You can get a bank account with multiple currencies which will solve this issue, for example by setting up an account with HSBC in Hong Kong, Singapore, Australia or the UK.

Can you get 0% fees (in other words can you get the inter-bank rate)?

There is also an option for using a foreign exchange broker to directly exchange money and pay the same rates that banks pay.

This is something I have personally done, but it’s a little tricky to set it up. I would not recommend it unless you have over $500k to transfer.

In other words brokers don’t really want you to set up an account just to exchange some money! They are looking for you to trade, and transact hundreds of times so that they make something on brokerage fees. One company you could use for this is Interactivebrokers. There will be a monthly fee and a minimum to open the account if you do this.

Options for lower fees when traveling

All of these previous options are more for transferring larger amounts of money. If you’re traveling overseas and just need some cash during your trip, there are basically two options: Local currency exchange (cash to cash) and simply using your credit card.

The best option depends on which country you are traveling to. Some countries have a local economy that relies heavily on exchanging to US dollars and you will find in these countries that the exchange rates for cash to cash can be quite reasonable (around 1% fees one way).

Some examples are: the Philippines, Hong Kong or Ukraine. If you have US dollars then the best option for these countries is to bring US dollar cash and exchange it when you arrive. Mostly you will not want to exchange at the airport as the rates are likely to be a lot worse than in the city center.

Credit cards without foreign transaction fees

Credit cards are another option for getting your money when traveling. This can be either paying via the card or withdrawing from an ATM.

You want to be careful as most cards will double-charge you, not only for the currency conversion, but also an extra fee for withdrawing from ATMs and then on top of this an additional charge for foreign currency withdrawals.

So you can end up being charged in three separate ways for the same transaction: 1) The ATM fee 2) A percentage charge for cash advance or for foreign currency transactions 3) Another hidden fee on the exchange rate (again banks do not declare this fee to you they just tell you that this the “rate” they are giving you, but of course that “rate” includes their undisclosed fee.

There are some credit card options without additional fees whilst traveling, but all of them as far as I am aware will still have the hidden fee that they take when converting currencies.

Here are a few of the options:

• Capital One in the US
• American Express (Platinum, Business Platinum) in the US
• Barclays (Arrival Card) in the UK
• Halifax (Clarity MasterCard) in the UK
• 28 Degrees (MasterCard) in Australia
• Aussie (Platinum Low Rate) in Australia

Update: New transfer method that is lower cost than any other especially when transferring from Europe or the UK

Wise, formerly TransferWise – This company has some investment from Richard Branson and is a great option in that they don’t charge any hidden fee on the currency exchange. Instead they charge a fixed and completely declared fee of 0.5% in the UK or Europe or 1% in the US.

If you have any other tips for saving money on currency exchange fees let me know!

Rob Rawson

Rob Rawson is a co-founder of Time Doctor which is software to improve work productivity and help keep track of what your team is working on, even when working remotely.