If you’ve ever sent money abroad, you may be familiar with exchange rates, the value of one currency expressed in terms of another. Exchange rates play a major role in the process of currency conversion. In fact, the rate used by your money transfer provider, whether it’s a physical location or an app like Remitly, has a big impact on the total amount of money your recipient receives.
Unfortunately, it can be challenging trying to find fair exchange rates. Not to mention, with so many providers to choose from, where do you even begin to look for the best rate?
We’ll dive into the specifics of how to get the best exchange rate when sending money abroad—but first, it’s worth understanding how exactly exchange rates affect international money transfers.
Why Does a Currency’s Exchange Rate Matter?
Though often thought of in the context of overseas travel, exchange rates are important to everyday life because they affect the value of a nation’s currency. In the U.S., a stronger dollar means imported products are cheaper, whether at the mall, grocery store, or gas station.
When it comes to sending money internationally, exchange rates play an especially big role. Unlike sending money to someone within the same country, sending money abroad comes with the added complication of currency conversion.
After all, if you send someone money as a foreign currency, they probably won’t have much use for it unless their country also accepts that currency.
No matter how big or small, the amount of money you plan to send internationally is also heavily impacted by a currency’s exchange rate. A low exchange rate could mean your recipients receive less money.
To illustrate, take a look at the following example, in which $1,000 U.S. dollars are converted to Philippine pesos using two exchange rates:
- USD/PHP 50.146 = US $1,000 becomes 50,146 pesos.
- USD/PHP 47.419 = US $1,000 becomes 47,419 pesos.
See how a lower exchange rate can result in nearly 3,000 fewer pesos? For larger transfers in particular, even a small difference in exchange rate could mean losing or gaining hundreds of dollars.
The Difficulties of Finding a “Good” Exchange Rate
Because of exchange rates and various bank or transfer fees, the reality is that your recipient never receives the full amount of money you send.
This challenge exists because traditionally, sending money abroad as remittances wasn’t covered by consumer protection laws. However, the U.S.’s Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in 2010, included a remittance transfer rule to address this problem.
According to the rule, companies that provide remittance transfers must clearly disclose to consumers important information like:
- The exchange rate
- The total amount of money to be delivered abroad, excluding additional fees and foreign taxes
- The fees and taxes charged by the transfer company in question
- The fees charged by the transfer company’s international agents and intermediary institutions
The law also stipulated that money transfer companies should give customers transfer receipts containing details like how to cancel a transfer, what to do in the event of an error, and where to submit complaints.
For anyone sending money abroad, this law represented a big step in the direction of consumer protection. However, there still remains room for improvement.
In a 2018 report, the U.S.’s Bureau of Consumer Financial Protection found “mixed levels of compliance” with the remittance transfer rule. Specifically, it observed that consumers generally received disclosures, “albeit in many instances with inaccuracies and errors.”
In other words, even though the law requires it, not all money transfer companies are honestly disclosing information about exchange rates. Consequently, sending money internationally still comes with the challenge of providers acting dubiously about their rates and fees.
How to Get the Best Exchange Rate: 6 Tips
So, how can you get the best exchange rates when sending money abroad? Unfortunately, there is no simple answer because you’ll need to consider factors like:
- The country you’re sending from
- The country you’re sending to
- The amount of money you want to send
- Your payment method
- Your recipient’s receiving method
The exchange rates used by providers vary based on these details. However, you can follow these six best practices to narrow down and find the best exchange rate for your specific needs.
1. Find out the mid-market rate
To begin with, you won’t be able to tell if you’re getting the best exchange rate if you don’t know what the mid-market, or interbank, rate is.
This rate describes the average between a currency’s bid and ask rates, and is used by banks when they transfer money between each other.
The mid-market rate is important because currencies are traded constantly, with their prices fluctuating based on imports, exports, and other economic factors.
By identifying the midpoint between the buying and selling prices of two currencies, the mid-market rate provides what you can think of as the “real” exchange rate, or the true value of a currency. It’s also oftentimes the rate that’s published on major financial websites like Reuters.
Knowing the mid-market rate makes it easier to calculate the exchange rate markup, what money transfer providers charge for their currency exchange services. The markup can tell you whether you’re getting a fair exchange rate—or an expensive one.
Simply put, you can use the mid-market rate as a frame of reference for the rates offered by banks and transfer services. Note that money transfer providers don’t necessarily obtain the mid-market rate themselves.
Having this reference point helps you distinguish between available rates.
2. Know your options for sending money abroad
How to get the best exchange rate? Do your research!
Today, there are many options for sending money around the world compared to years ago, when international transfers generally meant bank wires. However, providers vary in their fees, policies, and exchange rates.
To find the best service for your transfer, it’s important to know your options and understand their basic differences:
- Banks – Most major banks allow you to wire money to other countries. While you might expect banks to offer the most competitive exchange rates, some of them are notorious for charging a pricey 2.5% to 4.5% in markups. (A few banks charge even more—as high as 13%!) That’s on top of any international transfer fees, which can range between $30 and $50.
- Money transfer services – Traditionally, independent money transfer companies were few and far between, with just a few options for sending money overseas. However, there’s no shortage of these standalone services today, and they almost always charge less than banks—usually between 0.5% and 1%. Best of all, most of these alternative providers make transferring money fast and easy; you can send funds in just a few clicks.
- Checks and money orders – Aside from banks and money transfer companies, you can also send money internationally via mail. However, compared to the other methods, sending checks and money orders tends to be less efficient. It may take weeks before your recipient receives your money order, and not all countries or banks accept these kinds of international payments in the first place. What’s more, there may be restrictions on the amount you can send. Finally, many international money orders may be advertised as fee-free, but actually become more expensive through poor exchange rates.
Each provider will vary in terms of transfer fees, delivery speed, and even how you initiate your transfer. Some excel at in-person transfers while others, like Remitly, offer quick and easy transfers using an app.
3. Compare quotes from different services
Because the exchange rates used for currency conversion vary widely between money transfer providers, you’ll need to shop around. Collect quotes from various services to find out which one will deliver the most money to your recipient.
As you compare providers, remember to dig into each service’s fine print. Some transfer companies are deliberately misleading, claiming to have zero transfer fees.
Watch out for this kind of messaging: these services generally come with a large exchange rate markup to make up for their lack of fees.
4. Prepare for both regular and seasonal fluctuations
Exchange rates change constantly—not just once per day, but rather, multiple times over the course of a single day. If you’re wondering how to get the best exchange rate, you have to consider these changes.
Many factors contribute to this fluctuation, including the supply of a country’s currency, demand for it, and the country’s economic performance. However, timing of the year may also play a role.
During a country’s peak tourist season, for example, foreign demand for domestic goods may be higher. This, in turn, boosts the value of the country’s currency, and increases exchange rates in their favor.
Tourism isn’t the only way timing may affect exchange rates, though. Some regular but smaller fluctuations in exchange rates occur on a weekly basis. The middle of the week—Tuesday, Wednesday, and Thursday—generally experiences more volatility because the foreign exchange market is most active at these times.
Meanwhile, exchange rates tend to stagnate or experience fewer changes on the weekends since there is less trading activity.
However, in noting these broad trends, it’s important to recognize that it’s virtually impossible to pinpoint one ideal time of day or week to exchange currencies. There are many unpredictable variables, such as a country’s political stability, that can lead to abrupt swings in exchange rates.
The currencies you’re exchanging may also make a difference. For example, one analysis of trading data for the U.S. and Canadian dollars found that exchanging on the first business day of the month or spread out over the last five business days of the month had the best rates.
5. Get a guaranteed exchange rate
Because exchange rates are in constant flux, the final amount you plan on sending internationally could change drastically from yesterday to today.
But there’s a workaround here: guaranteed, or “locked in,” exchange rates.
You can think of a guaranteed exchange rate as a rate that’s set for a certain period of time. That is, it’ll stay at a specific rate despite any outside factors that might otherwise create a favorable or unfavorable swing in exchange rate.
Some services even offer currency forward contracts, a long-term option to lock in exchange rates if you plan on sending regular transfers internationally.
This is ideal for anyone with a regular remittance schedule and sending money weekly, monthly, or quarterly to the same recipient abroad.
6. Give yourself time
If your money transfer isn’t urgent, you can take your time finding a transfer provider with a good exchange rate. The earlier you begin looking into providers, the better understanding you’ll develop of the rates offered by different services.
You can also observe changes in the mid-market rate and identify better times to initiate a transfer.
When possible, give yourself room for flexibility—for example, by starting your research well in advance. It could mean sending more money to your recipient in the long run.
Finding the Best Exchange Rate
No matter how big or small the amount, every dollar, euro, and peso counts when you’re sending money abroad.
But getting the best exchange rate for your international transfer isn’t always easy—many companies use unclear messaging to hide fees or big markups in their exchange rates.
A fair and affordable exchange rate is essential to maximizing the amount of money your receiver actually gets at the end of the day.
Before you send any money abroad, be sure to research your options to find the best provider for your needs. For starters, learn how to quickly and cost-effectively send money overseas using Remitly’s app.