Set For Life: Beating the Banks

11 June 2004


Your Money / Your Life by Steve Mollman - Asian Wall Street Journal


Set for Life, Personal Journal's new personal finance column, explores the more emotional aspects of wealth creation, from asking for a pay rise and saving for your children's education, to collecting Asian art. This week, in a regular column on finding cool tools and resources to save money, Personal Journal writer Steve Mollman investigates how to reduce the cost of transferring money overseas. In his regular column, Steve will not only find ways for you to save on fees and charges but will offer tips on how to pull back on other expenses that blow out your cost of living -- all to help you on the path to being Set for Life.

TIM SIMPSON is annoyed. A communication and new media professor at the University of Macau, Mr. Simpson doesn't understand why it costs him so much to transfer money from his Macau bank account to his U.S. account. The American-born professor says his Macau bank charges about US$20 for each transfer, and then his receiving bank in the U.S. charges an additional fee. And when he sends cash from the U.S. to Macau, his U.S. bank charges even more -- about US$50. "It should be a reasonably priced service to move money between them because I'm already a customer of the two banks," he says. "It doesn't seem like it should be that much money."

Whether you're an American in Macau or a Singaporean in Hong Kong, living overseas means that you will, in all likelihood, be forced to transfer money between bank accounts you hold in two countries, in two different currencies. And each time you transfer money to settle a tax bill in your home country, send cash to family, or pay off an overseas credit-card bill, banks not only charge an upfront fee to send or receive money but also work in a profit on the currency exchange rate. It hardly seems fair, says Mr. Simpson. "It's my money. Why should I pay so much?"

There are some well-tested ways to lower the cost. To cut down on the upfront transfer fee, you can simply reduce the number of transfers you make. Instead of doing four transfers of US$2,000, for example, make one transfer of US$8,000. Also ask your company if it offers corporate-sponsored employee bank accounts, which often waive some wire-transfer fees.

But there are even better tools out there these days.

One option is Tranzfers (www.tranzfers.com), an online service started early last year by Sydney-based OzForex Pty Ltd. It offers more competitive currency exchange rates than most banks, and also offers a better deal on transfer fees. To get started, users transfer money to a local Tranzfers bank account.

OzForex managing director Matt Gilmour, who founded Tranzfers, previously worked in currency exchange for major banks. "I was cognizant that small customers were getting bad rates," he says. Major banks charge hefty upfront fees for wire transfers. But a bigger, hidden charge, he notes, is in the exchange rate. Many banks add margins of 1.5% to 2% or more, and usually won't reveal the percentage up front. Tranzfers adds 0.4% to 1% -- and makes it clear what rate will be charged before the transaction is made.

Mr. Gilmour offers a scenario on saving with Tranzfers. Using a big-name bank, wiring about US$1,840 from England to Australia would cost about US$89: In addition to the transfer fees (about US$45 from the sending bank in England and US$7 from the receiving bank in Australia), a 2% add-on to the exchange rate would add another US$37. Using Tranzfers, by comparison, the transaction would cost US$31: a US$13 transfer fee charged by Tranzfers and then US$18 for the 1% add-on to the exchange rate. As the transfers are coming through the site's local bank accounts, the banks will charge very little or nothing for shifting the funds.

Tranzfers is a spin-off of OzForex (www.ozforex.com), which began in 1998 and targets larger companies. OzForex can still be used, however, by individuals. It offers a much broader range of currencies, and whereas Tranzfers is a fully automated site, using OzForex involves at least one phone conversation with the company (which may offer peace of mind when transferring large sums of money).Another way to avoid banks' high transfer fees is through, unexpectedly, PayPal (www.paypal.com), the payment system used by online auction giant eBay, based in California. Buying up vintage Beanie Babies isn't the only thing you can do with this service. Even if you're not making eBay purchases, you can transfer money internationally. The set-up to do this, however, is a bit involved: you have to establish two PayPal accounts. An American living in Hong Kong, for example, would need to establish a U.S. PayPal account connected to a U.S. bank and then do the same for the Hong Kong side. This means having two separate PayPal accounts under the same name, and each account also requires a home address in that country. To transfer, say, US$200 from the U.S. to Hong Kong: first, you'd transfer the currency from your U.S. bank to your U.S. PayPal account; PayPal doesn't charge for this, nor should your bank as it's a domestic transfer. Next, you'd transfer the money from the U.S. PayPal account to your Hong Kong PayPal account. Again, no fee.

The fees come when you transfer the U.S. currency from your Hong Kong PayPal account to your Hong Kong local bank. For this, PayPal charges a small flat fee -- in Hong Kong it's HK$3.50 (about 45 U.S. cents) but this fee varies within each country. The downside? The 2.5% that PayPal tacks on to the exchange rate, which it does for every such transaction, regardless of the country or amount.

Written by Steve Mollman AWSJ

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