How to avoid the hidden costs of sending money abroad

Avoid the hidden costs of sending money abroad

Pay a $4 fee for transfers under $333 CAD


If you’re looking to transfer money overseas, there’s now a cheaper alternative than using your bank or companies that specialize in international transfers—it’s a smartphone app called TransferWise Money Transfer.

When you send money internationally in a foreign currency, banks will charge you a hefty transfer fee or offer you their own exchange rate that has the fees baked into it. If you need to send large amounts of money, these fees add up and result in the banks taking a sizeable chunk of your change for themselves.

Now financial startups have sprung up in Canada offering much lower costs when transferring money internationally. One option is TransferWise, which launched in Canada in April. The app uses a peer-to-peer model which enables it to undercut the costs associated with making international transfers in the traditional way.

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According to TransferWise’s website send any amount under $333 CAD and you pay a flat fee of $4 per transaction. Send more and you pay a fee of 1.2% of the total amount sent. For example, send $10,000 CAD to a United States recipient through a traditional bank, such as TD Canada, and the recipient would end up with $7,527.85 USD. Send the same amount to the same recipient using TransferWise and they’d end up with $7,541 USD in their pocket. The larger the amount transferred, the greater the price difference.

A less appealing aspect of TransferWise is the delay time; according to their site, a deposit in Canadian dollars will take two to four working days to reach TransferWise. There’s also a maximum transfer limit of $5,000 CAD per day and $20,000 CAD per two weeks using direct debit. You can use the SWIFT payment for larger sums of money, but that’ll come with higher fees from your bank.

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The genius behind TransferWise’s peer-to-peer model is that money never actually travels internationally. Instead, TransferWise matches two people who want to exchange the same amount, but in opposing currencies.

For example, say that Bob lives in Canada and wants to send $100 CAD to his U.S. dollar account in the United States. Meanwhile, Alice, who lives in the U.S., wants to send $200 USD to her Canadian account. For simplicity’s sake, assume the exchange rate is $1 CAD for $2 USD.

After they make their respective requests, TransferWise sees that they both want to send equivalent amounts, just in different currencies. Bob sends the $100 CAD from his Canadian account to TransferWise, who sends it to Alice’s Canadian account. Meanwhile, Alice sends the $200 US from her US account to TransferWise, who sends it to Bob’s U.S. account.

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To Bob and Alice, who are unaware of each other, it appears that they sent money from their own accounts in their own currency, and it landed in their overseas accounts in a different currency. But really, the money was sent locally to each other’s local accounts via TransferWise’s own local account. TransferWise just made the match and facilitated the transfer, and charged it’s own fees for doing so.

—A previous version of this article incorrectly stated that a $15,000 CAD transfer to the United States using a traditional bank would get you $7,527.85. This was a typo. The figure of $15,000 has been corrected to the originally intended figure of $10,000 CAD—