Bank transfers can be a fantastic way to move money around the world. They’re a quick, easy and relatively inexpensive transfer procedure.

But not all banks are created equal. Banks, being banks, will almost always charge you a margin on exchanging currencies. And if you’re using a bank that applies a higher margin than other exchanges, your rate could be significantly worse than the rates offered by dedicated currency exchanges.

So, how can you avoid these pitfalls? To help you save money and sidestep your bank, all you need to do is follow our four-step guide to finding the best exchange rate for bank transfers.

1. Find relevant providers who you feel safe with

The first step is to find a provider that makes you feel comfortable. This means you want to find providers who are reputable and who have a good history of delivering reliable service. You should have no problem finding a provider that’s domiciled in your country, but if you do, be sure to check out the transparency of their privacy terms and exchange rate conditions.

If you’re passionate about environmental, social, and governance (ESG) practices, you might be more comfortable working with an exchange provider that adheres to these principles. To do so, look for providers that have an ESG rating. You can use independent standards like the Global Reporting Initiative and the Carbon Disclosure Project to find out more about a provider’s ESG standing.

2. Shop for the best rate

The next step is to shop around for the best rate. This might be difficult if you’re a new customer or if you’re not sure of what’s involved. So, here’s a quick cheat sheet:

• Look for a provider that offers a variety of options, such as cash deposit, wire transfer and credit card payments
• Check the provider’s exchange rate. Is it a good rate? Is it a good rate for you? Is it competitive with other providers?
• Find out if the provider will charge any fees when you’re transferring money. Are fees charged at a flat rate or as a proportion of transactions? Any additional conditions affecting international transfers, currency swaps and exchange rate transactions need to be clear

3. Make sure that per transfer they apply the same margin

Despite what you might think, banks and other financial institutions rarely charge the same rate when exchanging currencies. Some banks will charge a higher rate than others. This is usually due to something called “exchange rate margin” — that is, the percentage difference between the consumer exchange rate and the mid-market exchange rate.

If the margin is high, you’re paying too much for exchanging your money. If the margin is low, you’re probably getting a good rate. So, a good rule of thumb is to look for the lowest margin on the exchange rate provider that you’re using.

As you compare the rates offered by different banks, you might notice that some providers offer more cost-effective introductory or “honeymoon” rates. As the name suggests, these rates are designed to attract new customers. While promotional conditions may seem enticing, you should be cautious of honeymoon rates. As a rule, honeymoon rates are only active for the first few transactions on a new account. After that, the higher margin will kick back in. So, while you might be paying less for your first few transfers, any subsequent transactions will be subject to much worse exchange rates.

4. Negotiate for even lower margin and better exchange rate

The final step is to negotiate for a lower margin and higher exchange rate. This might be difficult if you’re new to the exchange rate world. However, a little bit of research can go a long way. You can start by asking your bank if they offer better rates than other banks. If they turn you down, you might want to start looking at providers who offer a lower margin.

Some providers will offer to swap currencies at a low rate for immediate settlement. This is called a “spot rate“. You might consider using this rate if you’re sending large sums of money and require immediate exchange. However, if you’re planning to use spot rates, you need to be aware of the risk of currency volatility. Currency markets can change very quickly, and rapid fluctuations can lead to a big difference between spot rates and relevant currency futures.

You can also ask about bank transfer or exchange rate conditions. Some providers will charge a flat rate for exchange rate transactions. Others will charge a flat rate plus a percentage of transactions. If you’re not happy with the terms, don’t hesitate to shop around for a provider that better suits your financial needs.

Key takeaway

Exchanging currencies can be a costly business if you’re not careful. However, if you follow these steps, you should be able to find a provider that meets your needs and avoids the pitfalls of international bank transfers.

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