How often has it happened that you wanted to send money to India from abroad and were stuck. You had one question in your mind: “How to select the cheapest remittance option to India?”. Well, in this article, we will debunk the myths around the classic concept of “Transfer Fee VS Exchange Rate” and explain the basic elements of selecting the cheapest medium of remittance to India.
To understand the intricacies of the topic, we will be taking up a real life example as well where we will calculate the transfer fee while extensively elaborating the exchange rates for you. So let’s start.
Transfer Fee VS Exchange Rate
Let’s start by establishing a clear understanding about Transfer Fee and Exchange Rate. A point to note here and worth remembering is:
“The major factor of remittance isn’t the transfer fee but the exchange rates.”
There are MTOs (Money Transfer Operators)* like MoneyGram and Western Union that don’t charge any fee for remittances to India if you have chosen bank account transfers as the medium. Although, if you choose to send the money using your Credit/Debit Cards in case of MoneyGram, there is a fee of $2.99 as the money is transferred within minutes.
Another MTO, Kotak Click2Remit charges a fee on the exchange rate for the service it provides under the guidelines of Goods and Services Tax (GST) which is equal to Rs.742.19 on interbank transfers. Transferwise has a fixed charge of $60.56 (current) along with extra fee on the medium chosen for transfers [$34.88 for Bank Debit (ACH) and $5.34 for wire transfers].
Note: All the charges mentioned above are for a transfer of $10,000 from USA to India. It will be common throughout the article.
*Money Transfer Operators (MTOs): Money transfer operators (MTOs) are financial companies (but usually not banks) engaged in cross border transfer of funds using either their internal system or access to another cross-border banking network.
Now, we can clearly establish that the transfer fee ranges from $0 to a maximum of around $95.44 for a $10,000 transfer from the USA to India. So, does this transfer fee cast any shadow on the final figure received? Well, the answer is NO! It doesn’t affect the final amount that much. Let’s understand how.
Why such a difference in transfer fee?
The basis here is “Exchange Rates”. For operators such as MoneyGram or Western Union that charge a $0 fee on transfers, the exchange rates fluctuate very rapidly. On the other hand, Transferwise charges up to a maximum of $95.44 on a $10,000 transfer from the USA to India but guarantees a fixed exchange rate for a stipulated time (currently 77 hours, as on 12/09/2020). Now, the fee that you pay is for this very service and busting another myth here: You don’t pay extra to Transferwise, the fee is deducted from the $10,000 being sent and the rest of the amount is converted. For example, sending $10,000 will incur a maximum fee of $95.44 [using bank debit (ACH), otherwise $66.07 (wire transfers)] which means that $9,904.56 will be converted at the stipulated exchange rate. Another benefit with transferwise is that the exchange rates that it provides are better than most of its competitors. So, in the end, the difference is minimal.
Let’s exemplify this fact using the real time exchange rates and transfer fee (as on 12/09/2020)
Sending $10,000 from USA to India: on 10/09/2020
- Transferwise (with maximum $95.44 fee): 2-3 days
Converted at 73.4325, Rs. 7,27,316 received
- MoneyGram (no fee): 3-4 days
Converted at 72.9335, Rs. 7,29,335 received
- Remit2India (no fee): 2-4 days
Converted at 72.66, Rs. 7,26,600 received
- Western Union (no fee): 0-4 days
Converted at 73.0726, Rs. 7,30,726 received
Sending $10,000 from USA to India: on 12/09/2020
- Transferwise (with maximum $95.44 fee): 2-3 days
Converted at 73.4400, Rs. 7,27,390.89 received
- MoneyGram (no fee): 3-4 days
Converted at 73.1772, Rs. 7,31,772.75 received
- Remit2India (no fee): 2-4 days
Converted at 72.70, Rs. 7,28,500 received
- Western Union (no fee): 0-4 days
Converted at 73.1822, Rs. 7,31,822 received
Takeaway: A point to note here is that Transferwise will charge you a fee for certainty and always provide the best exchange rate. While others will fluctuate rapidly. In a span of two days, fortunately the exchange rates went higher. So, if you wanted to send money immediately, you could have chosen the best out of the lot. But, in case you wanted a sure shot exchange rate, Transferwise would have been the most constant option as the rates can go downwards too. So, surety always wins over uncertainty.
Therefore, there are 3 factors that define the best rate:
- Final amount received
- Exchange Rate
- Time Frame (Urgency)
This brings us to the conclusion that in order to select the cheapest remittance option to India, the exchange rate as a factor always supersedes Transfer Fee. Remittances must always be planned well and in order to plan we need to know what’s right and what’s not. Focus on the right elements and you’ll always ace your remittance game.
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FAQs
TransferWise is cheap but doesn’t have the lowest costs for transfers to India. Although it doesn’t mark up its exchange rate for a profit like other providers do meaning you get more rupees per U.S. dollar.
There are multiple options to remit money to India. Some of them are:
Money Transfer Operators: Money transfer operators (MTOs) are financial companies (but usually not banks) engaged in cross border transfer of funds using either their internal system or using their collaborations with other international banking networks. Eg: Transferwise, Western Union.
SWIFT: Society for Worldwide Interbank Financial Telecommunication (Offline money transfer facility that can be availed at bank branches overseas)
Foreign Currency Demand Drafts: A form of demand draft made in foreign currency at various bank branches located overseas to remit money to India. The equivalent amount in INR will be debited for remittance.
There is absolutely no limit of sending money to India, provided you pay the required taxes. But, there is a limit of US $14,000 per person per year for tax free transactions. Any amount sent above US $14,000 per person per year, the sender is responsible for paying the taxes.
