I’m almost embarrassed to write this. As a five-year resident of Europe, you’d think I would have realized the raw deal I was getting long ago. However, I had always had good relations with my bank. They had never charged me unusual fees or usurious interest rates, and always offered friendly customer service.
Then, five years ago, I accepted a position with a tech startup in Amsterdam. For a while, I made maximum withdrawals to ease the pain of foreign ATM fees. I probably should have started asking questions at this point, but I shrugged it off. It was part of the adventure of moving overseas, so I just accepted it.
Not long after, though, I made a mistake that cost me thousands of dollars. Don’t fall victim to the same scam – below, I’ll explain why you should never use banks to move cash overseas.
The (hidden) perils of moving your life savings abroad
The time had come to move my savings to the Netherlands. As a Canadian, the CRA considers you a tax resident if you maintain a bank account at home while abroad. Up until then, I had no reason to distrust my bank. Accordingly, I (naively) set up a wire from my account at the Bank of Montreal to my new one at ING.
I remember my final balance at BMO like it was yesterday: $105,520. Amassed through a decade of RRSP matching with my former employer, it was a source of pride. After waiting impatiently for a few days, I got the call I was waiting for – ING had received the money.
Upon viewing my savings account balance, though, my face dropped a little. Someone less educated would have been over-the-moon to see €67,412 starting back at them. However, while waiting for the wire to clear, I had looked up the interbank rate.
According to xe.com three days earlier, CAD/EUR was hovering around 1.5. According to the rough math I did in my head, I should have had over €70,000. I fired up Calculator on my desktop and surfed back over to xe.com. Sure enough, the exact rate was 1.50463. Had I gotten this rate, I would have €70,130.
I was looking at more than a €2,500 gap between what BMO gave me(1.5653) and the mid-market rate. That equated to more than 3,700 CAD – or almost two month’s wages from my first job out of school. My face turned beet red, as I realized my bank had screwed me to the tune of 4%!
On that day, I finally understood why Canadian banks are among the most profitable institutions on the planet. They charge exorbitant rates and fees and hope their customers accept them like meek sheep. From that day forward, I decided to opt out from the system to the fullest extent possible.
Searching for a better way to send money
For most in my shoes, this story would have just been a cautionary tale about trusting the banks. But I was determined to find a better way to move money internationally. After all, I send cash as gifts to my nephews and nieces for birthdays and at Christmas. And my parents aren’t getting any younger – soon, I will have to move an inheritance to Holland.
My initial effort was rather depressing. Like the international finance noob that I was, I looked at Western Union first. With a strong name brand, WU is the dominant non-bank player in the money transfer industry.
One look at their fees and rates made my heart hit the floor. They were worse than the banks. Let’s say I want to send my 19-year-old nephew 200 EUR for “books.” Right off the bat, they charge a 15 EUR transfer fee – that’s 7.5% of the send total! And let’s talk about their exchange rate – as stated above, the CAD/EUR rate is 1.50463. On Western Union’s online money transfer platform, they offer 1.38800 – that’s a spread of 7.3%!
My first thought – “Well, at least the banks haven’t adopted WU’s business model.” However, my second thought was, “the financial industry has us over a barrel, there’s no point in researching further.” I got up from my computer, made a sandwich, then I went to bed.
Scores of alternatives exist to the banks
After bearing witness to Western Union’s M.O. (i.e., rob, pillage, and steal from customers that have no other options), I gave up. However, several weeks later, I was reflecting on how internet businesses have disrupted many industries. Thanks to the efficiencies the web provides, many online companies operate at a fraction of the cost of their brick-and-mortar counterparts.
“It’s 20 fricking 19!”, I thought. There’s no way the fintech industry hasn’t given rise to startups dedicated to making money transfer cheaper. This idea filled me with a renewed energy, so I jumped on my computer and began my search anew.
Soon, I found a site called MoneyTransferComparison.com. On it, you could compare money transfers rates from companies I had never heard of before. From Transferwise to Currencies Direct, these firms offered low/no fees, and exchange rates within a hair’s width of interbank.
I was so excited that I decided to initiate a money transfer, right then and there. My 21-year-old niece was about to set off on an Asian backpacking adventure – what a perfect excuse! I set up a 100 EUR transfer, attached a note (“buy your travel friends some beer on me”), and sent it off.
Had I used Western Union (shudder), she would have gotten 138.80 CAD. Through Transferwise, she got 150 CAD – in Thailand, 11 CAD will buy quite a few Singhas!
How do I move money these days?
After my eureka moment, I had become obsessed with getting the best money transfer deal possible. Every time I wanted to send money, I’d spend hours bouncing back and forth between sites.
I no longer do this, and you shouldn’t either. Time is valuable – once it slips through your fingers, it’s gone forever. Instead of wasting your evening comparison shopping, find a handful of companies you trust and bookmark them. When the time comes to send a transfer, submit a quote with each firm. Whoever comes back with the best price, wins.
This approach is best because, these days, competition among money transfer firms is cutthroat. One day, Currencies Direct may have the best EUR/CAD price. The next, it could be TorFX. By submitting quotes, their brokers do the work for you, giving you the best rate possible.
Stop rewarding the egregious behaviour of the banksters
It’s time we admitted it to ourselves: Toronto Dominion is not your friend. CIBC is not your friend. The Bank of Montreal is not your freaking friend. Their mission is to maximize shareholder value – offering you a sweetheart deal on foreign exchange goes against that objective.
Fortunately, the internet revolution has given us better money transfer options. It’s time we made full use of them.