Did you know there are almost eleven million digital nomads in the United States alone? While the status quo of traditional full time jobs dominate media, college courses, and job fares, more and more people are recognizing that the choice to work freelance opens up far more opportunities. COVID-19 understandably gave many individuals the impetus to take the leap.
One of the reasons there are so many opportunities for digital nomads is that you are not limited to one location. You can get jobs anywhere around the world. This has led to an upsurge in international money transfers. And anyone new to receiving money from overseas will have to eventually learn about fetching the best exchange rate.
If you haven’t had to send or receive money internationally, you may be wondering what we mean by the “best” exchange rate. Aren’t foreign exchange rates standardised? Actually, the exchange rate you get from one bank will be different to the one you get from another. The value you find in a Google search shows what is called the mid-market rate and can be seen more as an approximate guide to what you should expect.
Either way, why should some banks or money transfer companies give better exchange rates than others?
Banks and hidden fees
For decades, if you wanted to make international money transfers, banks were your best option. However, because they were relatively unchallenged, they charged high fees. But their costs didn’t end there.
Banks use the exchange rate to hide extra fees. By giving you a poorer exchange rate than the mid-market rate, they get to scalp some of the value of your transfer. As such, when you make a transfer through a bank, you lose a significant amount of your earnings. When you are receiving international payments regularly, it adds up to a lot of money.
This is not the only problem with bank transfers. They are also slow and inconvenient. But it was when search engines made the mid-market rate easily accessible at all times that people started catching on. This led to the rise of international money transfer companies.
What are international money transfer companies?
Modern money transfer companies were created with the intention of circumventing the expensive banking system. They aimed to make transfers easy to process online, significantly faster, and far cheaper.
Today, money transfer companies are in abundance. Some are better than others, but the general rule is that almost any money transfer company is better for international payments than the banks.
Money transfer companies charge extremely low fees and commissions. Since their business model works specifically on the basis of money transfers on a large scale, they are able to profit without putting the burden on the client.
Foreign exchange rates at currency providers
When you transfer money through one of these currency providers, you will be provided with an exchange rate that is far superior to any you would get at a bank. They have committed to providing the best exchange rate according to the mid-market rates.
In other words, there are no hidden fees when you use a money transfer company. Whatever fees or commissions they charge upfront are all you will be paying (unless explicitly stated otherwise).
Once a transfer company has offered you an exchange rate for the first time, compare it to what you find in a Google search, and you will likely find that they are very close, if not the same.
Regular currency transfers
For digital nomads, the issues with exchange rates don’t begin and end with hidden fees. Rather, you have to think about the difference between payments if the currency you are receiving strengthens against the dollar. While some currency pairings with the US dollar are fairly rigid, others vary wildly.
This means that the same amount of currency one month is worth less than what it was the previous month. When you are relying on these payments for your living expenses, this can become problematic very quickly.
Which brings us to another benefit of international money transfer companies. They provide added services such as forward contracts which allow you to settle on the current exchange rate as the standard for a set amount of time. While this means you won’t benefit if the dollar strengthens during that time, it gives you the peace of mind that you won’t lose out if the opposite happens.
Choosing a money transfer company
There are many money transfer companies around the world today. Some are better than others, but the top companies are fairly standard. Choosing the best one for you comes down to personal preference as much as anything else.
When it comes to exchange rates, the best money transfer companies will all provide the best exchange rates. Because they are not hiding fees within their rates, you will find that they always offer you the mid-market rate. Comparing it to what your bank offers you will demonstrate just how significant this service is.
Becoming a digital nomad requires you to experience a learning curve, but it is well worth it. You find yourself flush with opportunities in countries around the world. Instead of being limited to your city, you can work with companies from a number of regions at once. Knowing how to find the best exchange rate is crucial, as the poor rates provided by banks scalp a significant amount of your earnings.