International payments are complicated. With the math involved, you can easily be losing out on thousands of naira unnecessarily, via poor exchange rates and hidden fees.
According to the Co-Founder of MyCurrencyTransfer.com, Mr. Daniel Abrahams, whether you are planning to relocate, making business payments or you are simply sending money to a family member abroad, there are many ways to get the best deal on money transfers no matter what currency you are using.
According to medium.com, there are six common mistakes to avoid when making and receiving international payments.
- Paying high transfer fees without realising
Do you know that your bank will charge you up to N10,000 for making an international money transfer? You may just shrug and think: “Well, they have to make their money somehow,” but do you know that a non-bank foreign exchange specialist can transfer your money for you for a significantly lower fee. In fact, many currency brokers can provide free transfers if they are above a certain threshold. As a starting point, it pays to shop around.
- Not knowing the actual exchange rate you are getting
Over N10,000 transfer fees (depending on the amount being transferred) are explicit costs. Unfortunately, the greatest costs are ‘hidden’ implicit fees built into the rate of exchange. Unless you are an experienced trader, it can be quite a complex market to understand. This can lead to complacency and hefty exchange fees.
The difference between the ‘real’ rate and the ‘sell’ rate is a key yardstick when analysing the cost of transaction. As a first step, use an accurate currency converter tool. The ‘actual’ exchange rate is also called the interbank exchange rate and is the wholesale rate that brokers and banks use to buy and sell currency. When you know this rate, it makes it so much easier to compare exchange rates offered and to choose the best deal for you. Remember, you always have a choice. If you are not given a quote that is within one per cent of the actual exchange rate, it’s probably best to seek out another deal.
- Not fixing exchange rates ahead
There is a way to fix that great exchange rate you found today to ensure that you continue to transfer at the same rate throughout the year and beyond. A forward contract is a service provided by many money transfer specialists and commercial banks. Most forward contracts can run for up to 24 months and let you lock in today’s exchange rate. You only pay a 10 per cent deposit and settle the balance when your contract matures.
- Settling for the first deal
Shopping around is great, but clicking on the first deal you find is not. Do you know that you can now use comparison sites to compare foreign transfer exchange rates and the services offered by online money transfer specialists? You can also shop around through the websites or contact centres of some commercial banks to get the best deal. A good comparison site will also give you customer reviews on the companies featured so that you can make a wise and informed choice.
- Falling for the marketing hype
Are you tempted by that zero per cent commission transfer? Stop and think about how any company can afford to offer their services for free. Whilst there may not be any commission involved, you can bet that you will be getting a poor exchange rate. Companies offering zero per cent fees buy currency at one rate, work out their profit margin, and then sell it for a much less competitive rate. Just remember, a competitive exchange rate always wins no matter what the marketing hype may say.
- Not planning ahead
Whilst some money transfers are urgent and unexpected, most can be planned ahead. Emergency money transfers will often incur higher fees, but if you can plan out regular or future transactions as far in advance as possible, you can often gain access to lower fees. Prepare in advance.