How best to remit money from abroad
The rate offered is, of course, crucial when you’re transferring money here from abroad, but paying attention to a few other factors would save you even more.
Particularly when exchange rates are volatile, you need to be careful while transferring money here from abroad. This is because the eventual rate at which the funds are transferred to your account is governed by various factors. Typically, you would consider only the rate offered by a financial institution while conducting a foreign exchange (forex) transaction. However, there are other aspects that could result in a higher cost. These include:
Volatility during transfer: What we’re all thinking about is the forex rate offered by a bank or an agency. What you might forget the first time, however, is that the rate at the time you enter into a transaction isn’t necessarily the rate at which your funds will be transferred. This is because your details need to be verified by the agency or the bank the first time you transact. This process could take anywhere from two days to a week. Only when verification is complete, the funds will be debited from your account. So it’s the forex rate at this time that matters. For example, if the indicative rate at the time of registering the transaction is 62.3 $/INR and the rate moves to 61.8 when the funds are debited from your account, the funds will be transferred at 61.8, resulting in a notional loss Rs0.50 per $.
Tip: In case you’re afraid of volatility in the rupee during verification, what you can do is lock your funds at a certain rate. Currently, though, only ICICI Bank offers this facility at a nominal fee of $2 per transaction.
Size of transaction: You’re probably familiar that banks and agencies have margins on their forex rates. Depending on this margin, one institution may offer you a higher rate than another. But while comparing, you should also factor in the size of your own transaction. This is because their margin is also influenced by the amount you wish to transfer. For example, Axis Bank uses the below-mentioned slabs:
*As on 8th October, 2013
Therefore, it would be advisable to transfer a sizeable amount at a time rather than break up the transaction.
Mode of transfer: The mode of transfer you use also involves a cost. The two modes commonly used include an Automated Clearing House (ACH) transfer and a wire transfer. An ACH transfer is typically used for smaller remittances (usually below $10,000, though certain facilities have a limit between $3000 and $5000) and requires 5 days for the funds to be transferred into the receiver’s bank account while a wire transfer is completed by 2 days.
Tip: A wire transfer usually includes a transaction fee for the expedited service, so an ACH is fine if you’re not in a hurry.
Watch out for: Remittance charges will also include a foreign currency conversion fee, service charge and a transaction fee. These will be marginal, relative to the amounts you’re transferring, but it’s definitely worth factoring in your transaction. Here’s a comparative study of the rates offered by certain banks/money transfer agencies for a $1000 (ACH) online transaction from USA to India*:
|Axis Bank||HDFC bank||SBI||ICICI bank**||Western Union Money transfer||Remit2india|
|Additional fee||NA||NA||NA||2$ inclusive of service tax at 12.36||NA||5$+ service of Rs45|
*Rates have been taken from the respective website as on October 8th, 2013 post market hours for a direct transfer into an Indian bank account
** Also includes a fixed rupee transfer facility