With so many South Africans abroad, transferring money back to South Africa is a common practice. International money transfer companies have carved a nice niche in this arena, offering exchange rates that, in many cases, beat the banks. So why is it that most South Africans still use banks as their first point of call when transferring money home?
Like most expats on their respective adventures, South Africans transfer money home for many reasons, from paying off a bond to settling personal accounts and investing in overseas business opportunities (lest we forget paying your pops back that R25k you borrowed to head to London in the first place). High-street banks are the de facto point of call for these transfers, occupying the primary spot in the competition for your money. Yet somewhat surprisingly, studies show that the average UK resident pays more than £300 million a year in bank fees and charges for overseas transfers alone.
Up until recently, this has been fairly understandable. One of the biggest reasons why banks have occupied the undisputed top spot in the international remittance arena is because many people have trouble trusting online services of any kind, let alone forex agents. They know that banks have been around for a long time and are highly regulated. By the same token, they’re often unsure how to tell if a website is safe – let alone a company that alleges to offer cheaper exchange rates than your average bank. Compounding this is that a lot of people genuinely believe that banks are the cheapest way to transfer money, when, in truth, bank fees come in all shapes and sizes, from transfer charges and commissions to receiving fees at the destination bank.
It’s not uncommon for a UK bank to charge up to £30 to transfer your funds, while in South Africa you can be charged up to R500 to receive your funds (the good news is that a good forex service provider should only charge you around £10 when you transfer £1,000, removing receiving fees from the equation altogether). So if for instance you were transferring £1,000 to South Africa, the recipient would receive around R16,329.50 if you transferred through a bank, compared to R17,325.00 through a reputable forex provider (once you take the exchange rate and fees into account). For larger transactions – for instance when purchasing property, the saving would obviously be even more substantial.
High-street banks also tend to set their exchange rates only once or twice a day. In order to cover their bases and ensure maximum profitability, they hike the spreads to allow for volatility throughout the day. Some banks also advertise an interbank exchange rate – the rate at which they trade with one another. This may seem like the ideal rate, but it’s by no means the rate you receive when you transact through them. It is, at best, a representative rate that’s in constant flux and impossible to predict. Whether you choose a bank or a forex service provider, if we can offer you one bit of advice, it’s to make sure the rate you see is locked in, competitive, and represents the actual rate you will receive when you click “transfer”.