In doing my end-of-year finances and preparing to file my taxes, I had a hard look at my banking fees. I noticed they were down significantly over years prior, and it’s because I started using TransferWise. So I delved into a dizzying flurry of calculations and comparisons to show you exactly how I save over $2,000/year by using the TransferWise Borderless Account (click here for more info).
If you click on one of the TransferWise links in this article and use their service, I will receive a referral fee. I wholeheartedly stand by their service, and perhaps after reading this Transferwise review, you will as well.
The Ultimate Guide to Traveling With Money (cash, cards, ATM tips, reducing fees, and more)
This Article Isn’t Like Most TransferWise Reviews
It’s worth noting that a lot of TransferWise reviews focus on the benefits (and drawbacks) of using TransferWise to send money internationally. I’m tackling this a different way: I use TransferWise to get paid internationally, and transfer the money to my bank account. So if you are a freelancer, entrepreneur, remote worker, expat, or foreign landlord who gets paid in a foreign currency (or as in my case, multiple foreign currencies), this article is for you.
TransferWise vs PayPal
This comparison is specifically between Transferwise vs PayPal. PayPal has for many years now, been the industry standard for sending and receiving payments online; considered the best way to send money internationally. Friends use it to transfer money to one another, businesses use it to invoice and send and receive payments (including credit card payments), and consumers use it to pay for goods and services. It is recognized and trusted as the way to pay for things (and get paid for things) online.
And TransferWise is not a 100% substitute for PayPal. For example, TransferWise doesn’t offer e-commerce payments, email invoices, and payment links. TransferWise does one thing, and they do it well: they are the best money transfer app with the cheapest way to send money internationally (and conversely, to receive money from overseas).
PayPal International Fees
By using PayPal, you are paying (outrageously) for this brand recognition. Look beyond the surface, and PayPal international transfers involve fees coming and going. People who are throwing currency conversion into the mix are especially unlucky.
The problem is, PayPal international fees (and domestic fees for that matter) are ambiguous at best. There are separate systems with multiple qualifying criteria for merchant fees and consumer fees. There are huge charts that outline different fees depending on which country you are sending money to or receiving money from (and in the case of a merchant/business account, a long list of variables depending on the type of payment).
A gross generalization for receiving money with PayPal would be if it is a domestic transaction, they charge 2.9% plus a fixed fee (which is approximately $0.30 depending on the currency). If you are receiving money internationally, they’ll tack on an additional percentage of about 1%. On the whole, it works out to about 3.8% in fees. You get lucky if your payor is processing a domestic payment as a personal or batch or ACH payment, in which case (glory hallelujah) you can receive the money for free.
With this fee structure, you’ll get fleeced receiving small payments. I’ve been using PayPal as my payment processor for my books; for every $6.99 I get for each book, I pay a fluctuating fee (I don’t even now why it fluctuates but it does) of around $0.57 (which – I believe?? – is 3.8% plus $0.30). That doesn’t seem like much, but it’s 8.2% of the book’s sale price! Sell 100 books and add up the fees and I feel the pinch.
And we haven’t even converted the currency yet. Take a look at the international PayPal currency conversion fee (we’ll get to that in detail later in this article), and they don’t just state in their fee structure that they take 4%; no, they say “minimum” of 4%. What does that even mean???
Even more annoyingly, that 4% they take as the PayPal conversion fee is practically invisible. They just work it into the conversion rate and hope you don’t notice.
TransferWise prides themselves on being not only radically transparent with their fees, but also incredibly competitive. With their Borderless Bank Account (also known as a Multi-Currency Account), you can receive payments in eight currencies as if you are a local. This makes the transfer easy for your payor, and free for you. The TransferWise rate for wire transfers entails a fee that varies with the currency but is consistently way less than a bank would charge for a wire transfer.
Real Life Example: I wrote an article for a British publication. On the invoice, I included my UK bank details (as provided by TransferWise), so they paid me as if they were paying a bank account down the street, which made it cheap/free for them, free for me, and super quick.
Once you have received the money to your TransferWise Borderless Bank Account, you can convert to and hold the funds in 55 currencies! You can also transfer it to your (physical) bank account in any of those currencies. Best of all? TransferWise exchange rates are clear, and guaranteed to be the mid-market rate; this means they don’t charge a fee for currency conversion.
Real Life Example (continued): Now that I had a balance in my TransferWise UK account, I transferred it to my Canadian bank account at home. They did it at prevailing currency conversion rate, plus a very small – completely transparent – fee (more on this in the case study below).
Can I get an amen?
BONUS: As a self-employed location independent freelancer and entrepreneur, banking fees are tax deductible. Every time I transfer money from TransferWise to my local bank account, they show me exactly how much money I’m paying in fees. This makes it ridiculously easy to track – and deduct – these fees on my taxes.
Best Way to Transfer Money Internationally: Case Study
Let’s put some numbers to this, shall we?
Who this is for:
- If you are a freelancer or self-employed with an online or international business, chances are you will be receiving payments in multiple currencies.
- If you are a remote worker or expat with a telecommuting job or business that entails being paid in one currency, and you want to transfer that money to a local bank account in the country you’re residing in, this also applies to you.
I am a Canadian citizen and resident, so I have a Canadian bank account (duh). But I earn money in $CAD, $USD, $AUD, £GBP, EUR, and more. Here’s how I use both PayPal and TransferWise to receive and transfer money internationally, and the fees to do it.
Receiving International PayPal Payments
Let’s start with a $1,000 USD payment. As a Canadian with a Canadian PayPal account, this is considered an international payment, and I’m subject to the full monty of PayPal international transfer fees.
I’m receiving a $1,000 payment in USD. The prevailing conversion rate to $CAD on the date of writing this is 1.265. (So $1,000 USD = $1,265.23 CAD).
PayPal takes 3.8% (average) = $38
I am left with $962 USD ($1,216.93 CAD)
Now, I need to move that $962 USD from PayPal to my Canadian bank account.
The prevailing conversion rate is 1.265, but PayPal tacks on 4% and thus changes the conversion rate to 1.2297.
This means they are taking an additional $26.84 USD ($33.96 CAD) in conversion fees.
In the end, I receive $1,182.97 CAD (which is $935.15 USD).
Confused? Here’s the short and skinny:
For every $1,000 USD I receive in PayPal, I pay a total of $64.84 USD in fees, which is 6.5%.
Let’s say I earn $40,000 USD in a year through PayPal. I’ll pay $2,593.60 USD in fees. Yowza.
Receiving Money Internationally With TransferWise
Let’s look at the same $1,000 USD payment. I receive it in my Transferwise Borderless Bank Account, which to my US payor, is like any normal US bank account. My payor makes an ACH payment and thus I pay $0 to receive this money.
Now, I want to transfer the $1,000 USD to my Canadian bank account.
TransferWise charges $0.48 + 0.44%, which adds up to $4.88 USD ($6.17 CAD).
I receive $1258.82 CAD to my Canadian bank account.
Don’t believe it? Let’s make this indubitably clear:
For every $1,000 USD I earn, I pay $64.84 USD in fees with PayPal, or $4.88 USD with TransferWise.
Thus, I save $59.96 USD for every $1,000 I am paid.
So, if I earn $40,000 USD, I save $2,398.40 USD by using TransferWise.
The PayPal Currency Conversion Fee Workaround
Sometimes, you just have to receive money via PayPal. Many of the vendors I work with and earn affiliate income from only make payments to PayPal. Never fear, there is a workaround to reduce the exorbitant PayPal international fee.
Let’s look at the same $1,000 USD payment (which converts to $1,265.23 CAD at prevailing rates).
I receive it to my PayPal account, and (as above), I pay an average of $38 in fees, leaving me with $962 USD.
Now, instead of transferring the money from PayPal directly to my Canadian bank account, I transfer the $962 to my TransferWise $USD account. PayPal doesn’t charge for standard transfers out to same-currency bank accounts. And because there is no currency conversion involved, PayPal doesn’t get that extra $26.84 in hidden currency conversion fees.
With $962 USD in my TransferWise account, now it’s time to transfer it to my Canadian bank account. They take off $0.48 + 0.44%, which is $4.71.
I get $1,210.97 CAD (which is $957.29 USD).
Total fees paid with the PayPal Currency Conversion Fee workaround: $42.71 USD, which is a whole lot better than the $64.84 USD I’d have paid if I didn’t use TransferWise for the currency conversion. It’s an extra step, but well worth the $22.13 USD I save.
TL:DR (Cheapest Way to Send Money Internationally)
Numbers aren’t everybody’s jam, and if that’s you, you probably have a headache right now. So I’m going to summarize the above calculations as succinctly as possible, using the same $1,000 USD payment.
- With PayPal, I pay $64.84 USD in fees.
- With TransferWise, I pay $4.88 USD in fees.
- If I must receive a payment to PayPal, then doing so and then using TransferWise for the currency conversion means I pay $42.71 in fees.
TransferWise for Business
As a self-employed entrepreneur with fairly simple needs, I currently use a personal TransferWise account. But this year I may change it to a TransferWise business account, so I can further streamline my business accounting and save even more money.
Here are a few benefits of the TransferWise Business Account:
- It’s an alternative to a business bank account with your home institution, which will inevitably charge you monthly fees.
- You can invoice like a local.
- Avoid fees on Stripe.
- Spend money directly from your TransferWise account with their debit card.
- Send and receive money in multiple currencies.
- Make batch payments.
- And if you are a large enterprise with an international payment volume in excess of $200k/month, they’ll set you up with an API to help you scale.
The fees with TransferWise business accounts are the same as with personal accounts, with one exception: you pay a one-time fee of $42 USD for each international bank account (ie: currency) you set up. Amortized over years of saving fees with the likes of PayPal or even a local business account and processing international wire transfers, it’s a drop in the bucket.
Is TransferWise Safe?
You might be wondering if TransferWise is some online fly-by-night operation that is going to collapse, abscond with your money, compromise your data, or in some way leave you high and dry. I asked a friend “is TransferWise safe” after they told me about it and they looked at me like I was from the moon. After a bit of research, I soon realized why.
With 9 million+ customers, $6 billion+ transferred, regulation by the FCA, and Trust Pilot ratings by happy customers, it’s safe to say TransferWise is here to stay.
I haven’t even touched on things like how to send money internationally from your home bank account to another country, but rest assured TransferWise can help you out there too. TransferWise changed how I do business. How I receive payments from around the world and minimize banking fees and currency conversion fees.
Sold yet? I hope you are. Click here to set up your TransferWise account today.