A remittance is a payment from one place to another, whether it’s a personal transfer or a payment to a business. A common form of remittance happens when people send money back to their home country while working abroad. Over $600 billion moved from the U.S. during 2016, and migrants send hundreds of billions of dollars among all other nations annually. While in a foreign land, you might send funds to another country for several reasons:
- To support your family and loved ones in your home country
- To get local currency while overseas
- To repay loans
- To buy things
It’s critical to use remittance payments wisely. As an expatriate, you typically don’t have the experience and resources available to avoid paying steep fees. On average, remittances cost 6.5% of the amount you send (but you might pay more or less).
How to Send Remittances
Electronic payments are the easiest and fastest option, and you can make those payments from several different sources.
Banks and Credit Unions
Traditional institutions might be a decent option for infrequent transfers. Depending on your bank’s services, you may be able to send funds to a partner bank, retail store, or other location in select countries. To do so, ask a teller or customer service representative about making international transfers, ACH payments, and wire transfers.
Money Transfer Services
Some services specialize in helping migrants and others with frequent payments to foreign countries. You have numerous options in this space, including established brands and frequent newcomers.
- To transfer online, open an account, provide information about the recipient, and fund your transfer. You can typically use a linked bank account, a debit card, or a credit card to make payments. Be aware that your funding method affects how fast the money moves and how much you pay in fees. Credit cards are typically the most expensive option because you pay cash advance fees and high interest rates on those balances.
- To transfer in person, visit a physical location and bring cash or use any of the funding methods listed above. Money transfer services often have agents in grocery stores or convenience stores. Some provide self-service options through ATMs or other specialized machines.
New competitors enter the international payment space regularly, including blockchain and app-based remittance providers. Before you send money through a service you’re not familiar with, read reviews carefully and learn what consumer protections (if any) are available. If you want maximum protection, stick to your bank or credit union, a well-known brand, or a federally-regulated remittance provider.
Western Union and other household names have numerous locations in most U.S. cities, making it easy for beginners to send remittances. But that easy access can make them more expensive than other services.
Checks and Money Orders
Payments on paper might also be useful—remittances aren’t just electronic. However, paper payments are much slower than online options, and they may require a recipient with a bank account in the country you’re sending to. Discuss local conditions with your recipient
It may be risky to send large amounts if there’s no bank account available for safekeeping.
Prepaid debit cards may also be an option. The solution is relatively easy: You load funds onto the card, and the beneficiary can spend that money at merchants and online. But prepaid cards are notorious for fees, and getting the card to another country can be difficult—unless somebody physically carries it with them during travel. Also, using a card is not feasible in some areas, such as those where cash is preferred.
Fees for Sending and Receiving
You pay for remittances to foreign countries in two ways:
- Service fees to the remittance provider
- A spread, or an extra cost built into the exchange rate (also known as a margin)
Example: The U.S. dollar might be worth 50 pesos in the country you’re sending to. If you send $100, the recipient gets 5,000 pesos (ignoring any fees). But if your money transfer provider takes a spread of one peso, making the dollar worth only 49 pesos, the recipient only receives 4,900 pesos.
Which Is Best?
Some remittance providers use both forms above to charge you, while others only use one. Depending on how much you’re sending, it may make sense to choose a provider that uses one method or the other. For example, a spread doesn’t matter much for small transfers—as long as other fees are low. But if you’re sending significant amounts, the spread becomes more important, and it might be worth paying a large flat fee to get a better exchange rate.
In the U.S. a “remittance transfer provider” is required to provide full disclosure of fees and explain exactly how much the recipient will receive. However, some money transfer services do not fall under those rules, so you won’t always get disclosures.
In addition to the charges you pay when sending money, the recipient may have to pay fees to claim funds. A receiving bank may charge fees, and foreign governments may charge taxes for incoming transfers. When you send money, your service provider won’t necessarily know about all of those costs, but they should provide any information available.
If There’s a Problem
Federally-regulated remittance transfer providers in the U.S. offer well-defined consumer protections and are the best option if you’re concerned about safety. In addition to disclosure requirements, they’re required to resolve problems.
If something goes wrong, you may be entitled to a refund. You have 180 days to complain to a federally-regulated provider, and they have 90 days to investigate problems after you complain. Other remittance providers (that are not federally-regulated) should also resolve issues, but they don’t fall under the same rules. Still, you could have rights under state law, and organizations that process your payments may offer additional protection.