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WITH Exchange rate in the current climate, earning money in US dollars may seem like a dream come true for many Canadians. In fact, there are approximately 50,000 Canadians working in the United States alone. Some of them are permanent residents, while others commute across the border from municipalities such as Niagara Falls and Windsor, Ontario. Hundreds of thousands of Canadians run small businesses that do business on both sides of the border or own property abroad.
But when you earn U.S. dollars, you have to convert them to Canadian dollars to cover Canadian expenses, from groceries to mortgage payments – and for every $50,000 you transfer back to Canadian dollars, you’ll pay about $1,265 in fees currency exchange plus bank transfer costs. Given the fact that most Canadians small companies operate on margins ranging from 2% to 7%.you can see how important these bank fees quickly become.
Just 10 years ago, banks (and non-bank money transfer companies like Moneygram) cornered the money transfer market, and customers paid a high price for it. Canadian banks charge an average 2% markup for currency exchange services and a flat fee of $15-$30 for an international wire transfer, which most customers use. While 2% may not seem like a lot at first glance, it won’t take long to add up.
How to save on fees by using a money transfer company
As confidence in online commerce has increased, consumer acceptance of online financial service providers has increased steadily, and currency exchange is no different.
AND money transfer company or currency exchange intermediation is a newly coined term to describe a financial service whose sole purpose and function is to transfer money across borders. In most cases, the process is quite simple. Here’s how it works:
- You register with the company of your choice and complete basic compliance documents, i.e. valid proof of identity, proof of address (such as a recent government bill in your name and showing your current address), and proof of ownership of your bank account (which should be easy to obtain at a branch or online). Sometimes, when you are sending large amounts of money abroad, the service provider may ask you to provide more details about the nature of the transaction – for example, attaching a property purchase contract.
- You select the currencies you want to trade and the amount you want to trade.
- You explain the purpose of the transaction and who is the beneficiary of the amount. It’s perfectly fine to be both the sender and beneficiary of any transaction – in other words, you can send money to yourself.
- You receive a quote based on the data provided. If you work with any good supplier, the quote is final and does not include any hidden fees.
- Once you have accepted the quote, you will need to fund the transfer (in your home currency) within the next few days. This means transferring funds at an agreed valuation, in Canadian dollars, to a dedicated domestic bank account that the money transfer company can legally use only to convert into foreign currency and forward it to the recipient. Customer will be provided with an estimated completion date which should be accurate 95% of the time, excluding unplanned compliance delays or public holidays in the recipient country. Once the amount is marked as funded, the money will be exchanged at the given rate and sent to its destination.
If you choose best international money transfer services, for Canadians you can expect an exchange rate of 0.25% to 0.5% – up to 10 times cheaper than at a bank. There are no transfer fees, saving you an additional $15-$30 per transaction.
So in our previous $50,000 example, you’ll end up paying about $150, as opposed to the $1,265 you’d pay through a large bank or money transfer company. If you transfer that $50,000 in 12 monthly installments, you’ll save another $300 on bank transfers by using international online money transfer services.
These companies can also offer currency market guidance tailored to your personal requirements. For example, if you want to exchange your currency at the right time (when the rate reaches its highest level during the designated period), you can save a lot of money. This is a free service offered by most major money transfer companies for customers who want to transfer $5,000 or more.
“Can I trust an online money transfer company?”
Despite the potential for significant savings, Canadians are slower than most countries to adopt financial technology, and although the adoption rate increased from 18% to 50% between 2018 and 2019, we are still below the world average.
If you’re hesitant to use an online international money transfer service, you can clear up a lot of your doubts by using this simple checklist to check the service:
Ordinance. Almost every reputable company in this industry is based in the UK and has a UK trading license Authority for financial matters (FCA), which is known as a scrupulous regulator. In addition, some of the large companies are usually also regulated by FINTRAC AND FinCEN. Look for FINTRAC and FCA authorization.
Secured accounts. Part of the regulatory process that money transfer companies follow ensures that intermediary accounts (which are used to fund a customer’s transfer) are segregated and separate from other accounts owned by the company. This account is only used to exchange funds and send them to the beneficiary. If any company goes bankrupt, these accounts are protected and will be automatically returned to their rightful owners by the bank holding them.
Canadian accounts. When financing an outgoing transfer from Canada, it is best to use a company that has local bank accounts in Canada. This will make transferring funds quick, hassle-free and cheap. If any issue arises with a company with local accounts in Canada, you can contact FINTRAC.
Pure size. Although commercial money transfer companies are much smaller than the large banks in Canada, the major UK-based companies are by no means small or unstable. Companies like OFX (previously called Canadian Forex in Canada) are publicly traded and have been in business for over 25 years. They transfer over CDN$20 billion to their customers every year. TransferWise, one of the most recognizable startup companies in the world, is valued at over CDN$5 billion and has just finalized a unique partnership with Canada’s EQ Bank. There are around 20 companies around the world that have been in operation for at least five years and are worth checking out when comparing your options. On the money transfer comparison website money transfer providers, you’ll find 50 reviews of leading companies in this space. Of the 50 companies covered by the program, approximately 40 will be able to acquire customers from Canada.
Support and guidance. Once you sign up with any of the major companies, you will likely receive an immediate call back from a currency expert or salesperson. (You can opt out of this step by simply stating that you want to use the online system). When talking to a company representative, ask yourself: How expert did this person really seem, and did they offer appropriate help? Is this a company genuinely interested in providing additional value to customers, or is it trying to get you to exchange as much money with them as possible immediately to generate a quick short-term profit? How your representative answers these questions matters in the process of choosing which money transfer company you want to work with. If he has been professional and helpful, it means that you have someone you can count on both during the transfer and in the long term. If this person has not been polite and seems more interested in selling your product than in understanding your personal concerns and needs, it may be best to avoid that company.
Go ahead and haggle – you can save even more
To maximize your savings and get the absolute best exchange rates, don’t hesitate to sign up with multiple companies to ensure a variety of offers. If you run a small or medium-sized company, you can even negotiate the initially proposed rate.
In Canada, currency exchange and international money transfers through your friendly neighborhood bank branch are expensive. If you’re willing to do a little homework and use a reputable international currency exchange company, you could be handsomely rewarded.
