Hidden costs of international money transfers and how to avoid them

A man looking at a paper sheet

Sending money overseas has become increasingly common in our globalized world, with people regularly transferring funds to friends, family, and businesses in different countries. However, one significant challenge that often arises when sending money internationally is the high fees charged by banks for the service. While it may seem unfair that banks charge such high fees for a simple transaction, there are several reasons why these costs exist. In this article, we will explore the reasons behind banks’ high fees for international money transfers and offer insights into how to minimize these costs.

Exchange rate markups

Exchange rate markups refer to the additional cost that banks add to the exchange rate when converting currency for an international money transfer. Exchange rates are the rates at which one currency can be exchanged for another, and they are constantly fluctuating in response to market conditions. When you transfer money internationally, your bank will convert the currency you are sending into the recipient’s currency. Banks make money on currency conversions by adding a markup to the exchange rate. This markup can vary depending on the bank and the currencies being exchanged, but it typically ranges from 1-5% of the total transfer amount.

For example, let’s say you want to transfer £1,000 from the UK to a friend in the US. If the current exchange rate is 1.40 US dollars to 1 British pound, then your transfer should be worth approximately $1,400. However, if your bank charges a 3% exchange rate markup, then you would receive $1,358 instead of $1,400. That means that you would effectively be paying £30 for the currency conversion service.

It’s important to note that some money transfer services, such as Wise, offer more competitive exchange rates by using the mid-market rate (the real exchange rate) and charging a lower fee for the transfer. By doing so, they can often provide a more cost-effective option for international money transfers.

Correspondent bank fees

Correspondent bank fees refer to the fees that banks charge each other for processing international money transfers. When you send money internationally, your bank may need to use an intermediary bank in the recipient’s country to facilitate the transfer. This intermediary bank is known as a correspondent bank. Correspondent banks act as intermediaries between the sender’s bank and the recipient’s bank, ensuring that the transfer is completed accurately and securely.

Correspondent banks often charge fees for their services, which are usually deducted from the transfer amount. These fees can vary depending on the correspondent bank, the transfer amount, and the currencies involved. They can range from a few dollars to a significant percentage of the transfer amount.

For example, let’s say you want to transfer €1,000 from Germany to a friend in the United States. If your bank in Germany needs to use a correspondent bank in the US to facilitate the transfer, they may charge a fee of $25 for the service. This fee would be deducted from the transfer amount, so your friend in the US would receive $1,150 instead of $1,175.

It’s important to note that correspondent bank fees are often out of the control of the sending and receiving banks, and they can be a significant factor in the overall cost of international money transfers.

Regulatory compliance costs

Regulatory compliance costs refer to the expenses that banks incur to comply with laws and regulations related to international money transfers. International money transfers are subject to various laws and regulations, including anti-money laundering laws, Know Your Customer (KYC) requirements, and sanctions regulations. These laws require banks to undertake additional compliance checks and due diligence to ensure that the transfer is not being used for illegal activities, such as money laundering or terrorism financing.

To comply with these regulations, banks must invest in specialized software, staff training, and ongoing monitoring systems. These costs can be significant and are often passed on to the customer in the form of higher fees.

For example, to comply with anti-money laundering laws, banks must verify the identities of their customers and monitor their transactions for suspicious activity. This requires specialized software and trained staff to analyze and report any potential issues. These additional compliance costs are reflected in the fees that banks charge for international money transfers.

It’s important to note that regulatory compliance costs are necessary to prevent illegal activities and maintain the integrity of the financial system. However, some money transfer services, such as Wise and CurrencyFair, have streamlined their compliance processes to minimize these costs and provide a more cost-effective option for international money transfers.

Infrastructure and processing costs

Infrastructure and processing costs refer to the expenses that banks incur to maintain the systems and infrastructure necessary to process international money transfers. These costs include maintaining the necessary hardware and software, as well as the salaries of the staff involved in processing and managing the transfers.

Processing an international money transfer involves multiple steps, including verifying the sender’s identity, checking the transaction details for accuracy, converting the currency, and ensuring that the funds are transferred securely. All of these steps require specialized systems and infrastructure, which can be costly to maintain.

For example, a bank may need to invest in specialized software to detect fraudulent transactions or prevent errors during the currency conversion process. They may also need to maintain a dedicated team of staff to monitor and manage the transfers, ensuring that they are processed quickly and securely.


There are several fees associated with international money transfers, including exchange rate markups, correspondent bank fees, regulatory compliance costs, and infrastructure and processing costs. These fees can vary depending on the banks involved, the transfer amount, and the currencies involved. They can add up quickly and significantly increase the cost of sending money internationally.

While these fees are a necessary part of the international money transfer process, some money transfer services have established their own correspondent bank networks, invested in their infrastructure and systems, and streamlined their compliance processes to reduce these costs and provide a more cost-effective option for international money transfers.

When considering an international money transfer, it’s important to compare the fees charged by different providers and consider the total cost of the transfer, including any hidden fees and exchange rate markups. By doing so, you can find the most cost-effective option for your specific transfer needs.

Don’t overlook modern online banking options and P2P solutions when you need to send money to somebody abroad the next time.

Leave a Reply

Your email address will not be published.