Overseas money transfers

Vincent Turner
Vincent Turner
The following is a guest post by Vincent Turner.

Vincent is an Aussie Founder now residing in Silicon Valley making waves. Click here to learn more about Vincent.

Vincent also blogs on innovation, design, technology, music & travel on his personal blog at www.vinae.com.au

Nightmare, has any one else had this nightmare? It sounds simple enough, doesn’t it?

The nightmare

I have a bank account here in the US and one in my country of origin, in my case Australia. I need to get some money into the US so I can pay for things in the local currency and avoid $4.00 and 2.5% every time I withdraw money or some exchange rate that I can’t even really see when I pay for things on debit/credit. So you think what anyone would think, I’ll just do one big transfer – that must be cheaper, that must avoid some cost. Try again.

Your options:

  1. Draw out one big amount – bank charges you flat fee + 2.5% > 3.0% of the amount withdrawn – this is huge, this is like paying about $200 a month in bank fees on withdrawals alone for the average person living on say $6,000 after tax.. and that before even looking at the exchange rate.
  2. Wire transfer once a month or once off to US bank account – no % fee, a flat fee of ~$30 but then you get murdered on the exchange rate, and I mean murdered. When I went to do a transfer of $10,000 recently you could buy $1.02 US for every $1.00 Australian .. so I should be expecting about $10,200, minus say a bit for the exchange rate and the wire fee, let’s call it an even $10,100. My bank, who shall remain nameless, came back with $9,800, before the wire fee! .. hold on, that looks remarkably like the 3% again!

Pile of money - overseas money transfer

It’s just business

So, why do they do this? Well, this is likely to protect their foreign exchange risk, i.e. the time between when they accept my request and process it most likely sees some fluctuation in the exchange rates. Forget that in the long-term this is probably just as likely to move up or down (for or against them or me) over the long-term and across all their customer flows in and out of the country. Banks are in the game of risk management, making money isn’t an issue, so long as you never lose money. So this exchange rate is their buffer against swings against them, to help mitigate any chance that they might lose any money in providing the service. Makes perfect business sense, but anyone who has spent even half a day looking at the forex markets knows that they could easily take the opposite position to your transfer the instant you place your order and thus hedge any currency risk they might have in providing the service. They can provide the service for the fee and close out their hedge once the transfer is complete. But most major banks (at least in Australia) systems probably aren’t this sophisticated.

The solution

Fortunately like a good efficient market people have seen this opportunity and created more intelligent transfer solutions where the risk is hedged as the order is placed and they can then complete the transfer in the next few days. And guess who benefits? you do. As you don’t have to pay for the inability of a major bank to provide this service So here is how it works, there is a number of providers but I signed up for xe.com so will talk about them.

  1. You sign up online tick
  2. You send supporting documents, typically PDFs of recent bank statements and a copy of your passport tick
  3. You take (or return) a verifying phone call tick
  4. You wait for final approval which comes via email tick

Note, none of the set up process involves printing or signing anything and as the forex markets are open from Monday morning in Australia to friday evening in the US 24 HOURS A DAY.. the call centre is also open these hours. Then the process is super simple – you simply login and register your sending and receiving bank accounts, request a quote for your transfer and hit confirm. Once you have got confirmation you have a few days to get them the money, this simply means a local transfer to their local account in your sending currency. I.e. I sent money from my Australian company to their Australian bank account. In fact, xe.com enables you to send the money via bpay! you have to request that bit (1 more email/call only – and on the virtually on the spot). A day later, an email arrives from xe.com – the funds are sitting in my US bank account.

The results

Net result? Well – in my case here this was a decent sized transfer of ~$100k. I saved over $2,000 for doing about an hours work. In my exchange rate example above my bank would have given me 0.9800 for every dollar, xe.com gave me 1.0040 – plus by using bpay for the local transfer I saved another $35 bank wire fee too! Now, that I’ve saved $2,000 I might go buy some kiting equipment – I promise to think of you bank every time I’m out there. Banks really do help you save for the things you want, just not always how you expect them to. Vincent

Links mentioned in this post

How to get an unsecured credit card

The following is an account of my experience with obtaining an unsecured credit card. I hope it helps you getting your credit card faster and a reasonable credit limit.

Credit history – guilty until proven innocent

You should get a credit card when you 1st arrive in America.

But guess what, no large bank will give you an unsecured credit card since you have no credit history. In comparison to Australia, American credit rating system works backwards. In Australia you are innocent until proven guilty and in America you are guilty until proven innocent. Which means that in America you start with 0 credit history and you must build credit up from nothing. Chicken and egg scenario. How can you borrow to build credit when they wont let you since you are viewed as a high risk borrower. Read my prior blog post on this topic here.

Secured credit card – your money

The only option you will have is to obtain a “secured” credit card. This is you putting your money down (say $2,000) into your bank of choice and using that line of credit as though it’s a credit card. Basically you lock away $2,000 of your money and use your money as though it was the banks and you pay it off. On time! Else you will not get good credit rating. What’s important to remember here is that the bank records (keeps tracks) your credit behavior and reports it back to the credit bureau. It feels like being ripped off because it’s your money and the bank treats you as though they are doing you a favor. They are actually. Read on.

This process has to go on for 13 months. By the end of the 13 month period the bank will let you know whether you are eligible for an “unsecured” credit card and if you are what is it’s credit limit. Read my prior blog post on building credit history to make sure you do not break any of the credit card rules like maxing out your credit card (yes I know it’s your money but..) or that you pay on-time (yes, it’s your money but Uncle Bob is looking over your shoulder).

Patience young Aussie.. patience..

Getting a secured credit card faster (before the 13 months)

Yes, there is a faster method to get that unsecured credit card. Actually you can get it 5-6 months faster.

So the major banks have that 13 month policy (mentioned above) of watching your behaviour and reporting back to the credit bureau on your credit behavior. If you get a car loan with TechCU (see prior post here) then this would have been building your credit history ALOT faster then a secured credit card. A car loan is by far the best way to build credit history because it is a sizeable investment which you are responsible for servicing. This is a big plus (if managed properly) at the folks in the credit bureau.

So after 6 months of servicing your car loan with TechCU, approach them for an unsecured credit card. I did this after 8 months and they impressed me with an approval for a substantial amount (4x more then my secured credit card at Wells Fargo) the following day. Not only that, I also received a nice warm fluffy blanket (it is winter here after all) becuase I applied for a credit card with TechCU.

Next steps

I’m curious to see what will Wells Fargo come back with after the 13 months process is up. Are they going to match TechCU’s credit offer or come back with something lousey. I’m disappointed with their risk assessment of my account since I have kept all my American income in their bank and have great history with the secured credit card being paid on time. While TechCU using only my car loan payment history, credit rating and my professional history was able to see that I am a low risk customer and offer me an outstanding credit card product with maximum rewards.

Let’s see how things go. I will update this blog post with the outcome from Wells Fargo in the next few months.

~ Ernest

Links mentioned in this post

Expats guide on building Credit History in America
http://www.theroadtosiliconvalley.com/finance/building-credit-history-america/

Choice of Banks
http://www.theroadtosiliconvalley.com/finance/choice-banks/

Build credit history superfast – get a car loan
http://www.theroadtosiliconvalley.com/finance/car-loan-credit-history/