Did you know that the United Arab Emirates is the second-largest source of global money remittances in 2020? This is according to the Migration and Development Brief 35 published by the World Bank and the Global Knowledge Partnership on Migration and Development (KNOMAD).
This is not unexpected. The United Arab Emirates hosts the fifth largest migrant population globally, and foreign nationals comprise more than 80% of the UAE’s population.
Are you one of the foreign nationals in the UAE that regularly sends money online to your family overseas? Below are tips that will help you save money on remittance fees.
1. Transfer as a Cash Payout
When sending money through an electronic funds transfer service, you will need to decide whether to send the money as a cash payout or an account transfer.
Cash payout means sending money as cash. Your remittance provider will have a local remittance partner in your remittance destination country who will deliver the money to your recipient or wait for your beneficiary to claim it over-the-counter at a branch.
Meanwhile, the money you send is directly credited to your recipient’s bank account in an account transfer.
Sending money as cash that your recipient can pick up is typically the most affordable option, while direct-to-door cash remittance may cost a little more. However, these cash payout options usually cost less than account transfers.
Take a look at Al Ansari Exchange’s table of remittance service charges. Notice that, with a few exceptions, account transfer service charges are higher than cash payout service charges.
For instance, account transfers to Australia cost AED 60, while cash payouts to the same destination cost AED 35. Likewise, sending money to a bank account in Singapore costs AED 60 but sending cash costs AED 30.
The service charge for account transfers to the United States, the United Kingdom, Sweden, Switzerland, New Zealand, Ireland, Japan, and France is also higher than the service charge for cash payouts. This is the general trend for the markets Al Ansari Exchange serves.
There are 12 destinations, including the UAE and Saudi Arabia, where the account transfer service charge is the same as the cash payout charge. There are also a handful of countries — Qatar, Pakistan, Kuwait, Ethiopia, and Bahrain — where sending money as a cash payout costs more than sending money as an account transfer.
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You are more likely to save on remittance fees if you send your money as a cash payout instead of an account transfer or a credit to your recipient’s bank account.
However, there are destinations where the account transfer service charge may be higher than the fee for a cash payout. In the case of Al Ansari Exchange, cash payouts cost more than account transfers to Bahrain, Qatar, Pakistan, Kuwait, and Ethiopia.
Therefore, before proceeding with a transfer, check your service provider’s table of fees to see which service costs less for your remittance destination.
2. Use a Service With the Best Exchange Rates
Ask around, and most people would tell you they are fully aware of the costs of sending money overseas. In fact, according to a World Bank article, 55% of American consumers report they understand the costs of sending money abroad.
However, most people probably consider only service charges when calculating remittance fees. The same World Bank article indicates that only 18% of American consumers were able to identify exchange rates as a cost of remittance.
Yes, money remittance companies earn revenues from currency exchange. Even if a remittance service provider does not charge a service fee for transfers, it makes money from foreign exchange margins.
What is a foreign exchange margin? This is the difference between a company’s currency selling rate and the interbank or mid-market exchange rate.
The selling rate is the currency exchange rate a company applies to consumer transactions. Remittance service providers dictate their preferred rates.
The mid-market exchange rate, meanwhile, is dynamic. It is determined by macroeconomic forces and agreed upon by banks.
To illustrate the foreign exchange rate concept, suppose the mid-market or interbank exchange rate is USD 0.272 for every AED 1.00, and the remittance service provider sets a currency selling rate of USD 0.268 for every AED 1.00. In this case, the service provider’s exchange rate margin is USD 0.004 per AED 1.00 exchanged, or 1.4% of the transfer value.
Exchange rate margins can vary considerably from one provider to another. They can be something as low as 0.01%, but they can also get as high as 10%.
All remittance providers earn revenue from exchange rate margins. To minimize the costs of your remittance, compare remittance service providers’ exchange rates with the exchange rate you see on Google. You can then calculate which service provider charges the least exchange rate margin and thus has the lowest foreign currency exchange cost.
Using a remittance service provider with the best exchange rate or the slightest margin will help you save money on remittance costs.
3. Use a Funding Method That Charges No Fees
Some remittance providers have a mobile application for the convenience of their customers. For instance, the Al Ansari Exchange Mobile App allows consumers to save their beneficiaries and provides a Quick Send utility. These make it easy for consumers to perform recurring transfers.
However, the most useful feature of money transfer mobile applications is the availability of multiple funding options. You can link your app with your bank accounts, credit cards, and debit cards for convenient funding. You can also deposit funds to your digital account through offline payment facilities.
Every funding method can come with its own fees. Using a credit card to fund your e-wallet (which you can use to send money online) may incur additional service charges. Meanwhile, depositing cash at a branch to fund your digital wallet may come with zero fees.
When making a money transfer, consider the cost associated with your funding source. Save money by choosing the payment or funding option that doesn’t charge extra or charges the least among all available options.
Save Money by Minimizing Remittance Costs
Sending money electronically to any part of the globe has never been easier and more convenient. However, if you frequently send money overseas, the costs of such transfers can add up.
To minimize your costs and save money on remittance transactions, consider your remittance mode (cash payouts typically cost less than account transfers), your provider’s exchange rate margins, and your funding sources’ service fees.