In many countries, money transfers from migrant family members working abroad are vital for survival and progress. The payments sent from the earnings of migrant workers overseas, known as remittances, could be the difference between survival and poverty. In fact, remittance payments are on the rise globally and have become the biggest piece of foreign income sent to many developing economies. According to The World Bank, in 2021, remittances to low and middle-income nations climbed 8% vs. 2020 levels to $605 billion, surpassing even the strongest of predictions. And with the holidays right around the corner, the time couldn’t be better to prepare for any financial needs in your home country.
For those migrant workers who are responsible for sending cash to their loved ones back home, it could seem challenging to afford these payments, especially in a global economy where interest rates and inflation are on the rise. Workers must take care of themselves and set aside a percentage of those earnings for their families back home, which requires discipline and planning. Fortunately, there are ways to save money when the time comes to remit cash to loved ones back home, which we will discuss in further detail below.
Watch the Exchange Rate
When you’re remitting cash to family back home, every penny counts. A worker’s hard-earned money in a nation like the United States can go a long way in Brazil or Vietnam, for example. Therefore, one way to ensure your funds go further is to consider the exchange rate. The foreign exchange markets are constantly changing, so it is essential to do your research and compare the latest rates. Sending money overseas is pricier than doing so domestically, and the exchange rate is one place to look to potentially save money.
Depending on the size of the transaction, the difference between a high and low exchange rate could be hundreds of dollars or thousands of pesos, for example, and you want to be sure and get the most for your money.
Familiarize yourself with the mid-market rate, also known as the interbank rate, so you can better determine the markup or cost of sending your remittance overseas. You can find this rate on major financial websites such as Reuters, Yahoo Finance, or Google Finance. Begin checking the rates before you are ready to hit “send,” and then do so at a time when the rate is the most attractive.
Timing Matters
Sending money overseas does not have to be a total guessing game; you can time the transaction to get the most bang for your buck. Sending cash remittances to your family back home on weekdays could save you money vs. sending it on the weekend. Exchange rates remain active on weekdays, while weekends tend to reflect approximate rates that err on the higher side. Therefore, you could gain more transparency by sending cash remittances while exchange rates are live.
While certain wildcard factors affect a country’s exchange rate, such as geopolitical events or emergencies, studies have uncovered some trends that override this. One such study on the U.S. and Canadian dollars discovered that exchanging on the first business day of the month and the final five business days present the most attractive exchange rates.
Rates can also change based on seasonality, so keep this in mind. Depending on the platform, you might find more discounts and deals leading up to the holiday season, with lower fees and expenses. In some cases, you might also receive a discount for referring other customers to the platform you use to send money back home. On the flip side, during the peak-tourism season, currency demand may be more robust, so in this case, you might find that exchange rates are higher than usual, resulting in pricier cash remittances.
Sometimes, you can secure a locked-in foreign exchange rate that will not change over a specific period. Currency forward contracts in which exchange rates are locked in for future money transfers might make sense if the frequency at which you send remittances is quite often. These contracts are most common when directing the funds toward making a major purchase or investment overseas. The risk here is the possibility that exchange rates will fall, in which case you would miss out on the potential savings due to the locked-in rate.
Know Your Fees
In addition to knowing the mid-market rate, you’ll want to be able to calculate the amount you pay in transfer fees and expenses. An exchange fee calculator will help you to understand how much you are paying and for what and how much money your family will receive. Here is one by Bankrate, which relies on OANDA currency rates. Be careful because some providers might advertise for zero fees, but they will more than makeup for that with sky-high exchange rates. Thanks to these calculators, you can do comparison shopping to ensure that you use a remittance platform that works for you.
In addition to the country from which you are sending funds, there could be additional fees charged by your home country. It will likely be smaller than the transaction fee, but it is still worth considering when comparing providers.
Go Digital
Gone are the days of having to visit a brick-and-mortar money transfer company to send remittances back home. You no longer have to, nor should you rely on a hotel or an airport to send funds to loved ones. These establishments have some of the highest exchange rates out there, and you will see your funds dwindle by the time they reach their destination.
You will save time and money by using your smartphone or computer to remit cash to your family back home. You should be able to send the funds 24/7 without waiting for a physical store to open. Electronic money transfers are usually fast, so your family back home will receive the funds sooner than later. When it comes to remittances, time is usually of the essence, and the faster you can send the funds, the sooner they will be received.
