Forex Fees That You May Incur - Without Knowing It.

Why you can't just look at an exchange rate

The money transfer industry uses a whole raft of terminology when it comes to fees - spreads, tips, service fees, admin costs and the list goes on. All of which affect the real exchange rate you get and not the headline one you may have been quoted.

Uncovering the fees you pay is, therefore, extremely complex, which means understanding them is of paramount importance.

For many people the exchange rate is the only thing that they will look at, unaware of the other charges that they will incur with some companies. Let's look and see why the exchange rate is not the only thing you should take into account.

John needs to buy 100,000 USD to settle an invoice he has.

He has been shopping around for the best rate to buy some USD with his ZAR and has two sets of exchange rates from which he must decide.

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SWIFT Fee

You can read more about SWIFT fees here but in summary, SWIFT is required to track the funds you’re sending to another country.

Because there are multiple parties involved with the process of sending money through SWIFT (Society for Worldwide Interbank Financial Telecommunications), it serves as the primary network or communication platform for international banks to process money transfers. Needless to say, this service doesn’t come for free.

Again, these fees differ from bank to bank.We have seen a case where the original Euro 25 SWIFT fee increased to a Euro 600 fee, with the bank hoping to get away with this ‘hidden’ admin fee.

Sending and Receiving fees

Sending fees can differ greatly from bank to bank and institution to institution, think $2.50 through to $50 or $60. The sending fees can differ due to at the amount you send and even the amount of time you wish the transfer to take - some charge a premium for same day or 48 hour transfers, some banks even charge a percentage of the transferred amount as a fee!

As per sending fees, it can also be that the bank you are sending your money to, charges you a fee for receiving the transferred funds.

Again this can differ greatly but much in the same range as a sending fee might cost.

Other charges

These can be called any number of things, such as an administration fees. Again, these vary from bank to bank with little consistency.

What you should be looking for

Of course it is not just the banks who levy additional fees that you may not be aware of - so do some money transfer companies. In order to ensure that you are getting the best possible exchange rate, and to know what charges you are incurring, you need to be dealing with a company with complete transparent charging.

Option one - via his bank

Exchange rate to buy USD: 16.10

Amount bought: $100,000

Total cost to buy = ZAR 1,610,000

Using the bank SEEMS to save ZAR 15,000

John asks what other fees:

A transfer fee of 0.55% which equates to ZAR 8,855.

A sending fee charge of ZAR 750.

'Other charges' that amount to 0.6% or ZAR 9,660

Total fees = ZAR 19,265

Option two - Forex company

Exchange rate to buy USD: 16.25

Amount bought: $100,000

Total cost to buy = ZAR 1,625,000

John asks what other fees:

No other fees - it is all inclusive.

Actual saving using the forex company is ZAR 4,265

At Merchant West Incompass

Our rates are market leading and in most cases will beat those of our industry competition. More importantly, our rates are all inclusive, with no further charges, and they are also on a fixed spread basis. In other words, complete transparency.

Fees and why you can't just look at the exchange rate

The money transfer industry uses a whole raft of terminology when it comes to fees - spreads, tips, service fees, admin costs and the list goes on. All of which affect the real exchange rate you get and not the headline one you may have been quoted.

Uncovering the fees you pay is, therefore, extremely complex, which means understanding them is of paramount importance. Ensuring that you deal with a company that places transparency at the top of their values, is a big help.

The reality is that the exchange rate, whilst important, can seem market competitive until you start to take into account all the other fees that can be, and often are, levied on your money transfer transaction.

Sending and Receiving fees

Sending fees can differ greatly from bank to bank and institution to institution, think $2.50 through to $50 or $60. The sending fees can differ due to at the amount you send and even the amount of time you wish the transfer to take - some charge a premium for same day or 48 hour transfers, some banks even charge a percentage of the transferred amount as a fee!

As per sending fees, it can also be that the bank you are sending your money to, charges you a fee for receiving the transferred funds.

Again this can differ greatly but much in the same range as a sending fee might cost.

SWIFT Fee

You can read more about SWIFT fees here but in summary, SWIFT is required to track the funds you’re sending to another country.

Because there are multiple parties involved with the process of sending money through SWIFT (Society for Worldwide Interbank Financial Telecommunications), it serves as the primary network or communication platform for international banks to process money transfers. Needless to say, this service doesn’t come for free.

Again, these fees differ from bank to bank.We have seen a case where the original Euro 25 SWIFT fee increased to a Euro 600 fee, with the bank hoping to get away with this ‘hidden’ admin fee.

Other charges

These can be called any number of things, such as an administration fees. Again, these vary from bank to bank with little consistency.

What you should be looking for

Of course it is not just the banks who levy additional fees that you may not be aware of - so do some money transfer companies. In order to ensure that you are getting the best possible exchange rate, and to know what charges you are incurring, you need to be dealing with a company with complete transparent charging.

Option one - via his bank

Exchange rate to buy USD: 16.10

Amount bought: $100,000

Total cost to buy = ZAR 1,610,000

Using the bank SEEMS to save ZAR 15,000

John asks what other fees:

A transfer fee of 0.55% which equates to ZAR 8,855.

A sending fee charge of ZAR 750.

'Other charges' that amount to 0.6% or ZAR 9,660

Total fees = ZAR 19,265

Option two - Forex company

Exchange rate to buy USD: 16.25

Amount bought: $100,000

Total cost to buy = ZAR 1,625,000

John asks what other fees:

No other fees - it is all inclusive.

Actual saving using the forex company is ZAR 4,265

At Merchant West Incompass

Our rates are market leading and in most cases will beat those of our industry competition. More importantly, our rates are all inclusive, with no further charges, and they are also on a fixed spread basis. In other words, complete transparency.

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