Consumer Reports: Complex Fees Make It Hard for Consumers To Find the Best Deal When Sending Money Abroad

CR offers tips to get the best deal for people transferring money to other countries 

YONKERS, N.Y., March 15, 2012 /PRNewswire-USNewswire/ -- The good news for people who send money to loved ones abroad is that costs for remittances have been declining and options have expanded over the years, according to a Consumer Reports investigation. But the expanded options can make it complicated to shop for the best money-transfer service.

"Because of the complicated fee structure, consumers aren't necessarily getting the best deals," said Elena Chavez, manager, Spanish Language Outreach, Consumer Reports.

Each year, an estimated 6 million households in the U.S. send billions of dollars to families, friends, and others abroad. Nearly half of those remittances are sent by households made of adults born in Latin America and Asia, and about a quarter of the households include individuals born in Mexico.

The industry has relatively high satisfaction rates for transfers to Latin America and the Caribbean and fewer problems than a decade ago. In addition, new federal regulations that go into effect next February will generally require services to provide prepayment disclosure of actual exchange rates instead of estimates, the amount of foreign currency to be delivered, applicable fees, and the right to cancel a transaction, and contact information for reporting or resolve errors.

There are many ways you can send money abroad, through money transfer services in supermarkets, drugstores and major retailers, and in storefront operation. You can also send through banks, websites, even your cell phone. You can fund a transfer by handing over cash, having the money taken from your bank account, or charged to a credit or debit card. Some money-transfer services offer multiple ways to send and receive money—the number of which can depend on the country you're sending to—while others are more limited. Pricing is based on all of these variables, making it tough to compare services.

Consumer Reports researchers reviewed numerous services and sending methods. They evaluated currency exchange rates, transfer fees, and the terms of the services provided. As a general rule, the best-known companies, Western Union and MoneyGram, offer the most ways to send money to the most countries. But CR's researchers found them to offer less-favorable exchange rates than such services as Xoom and Viamericas and they also often have higher fees.

The full story is available at http://www.consumerreports.org/content/cro/en/money/best-ways-send-money-abroad.html. The investigation is being issued on World Consumer Rights Day, a day on which consumer organizations across the globe promote the basic rights of all consumers and call attention to marketplace abuses.

Given the large numbers of providers and variations on money-transfer services, each with its own complex combination of charges and sending methods, CR wasn't able to identify one service that will be the best deal in all circumstances. Still, CR developed guidelines to help consumers determine which service might offer the best value deal for a particular transaction.

Consumer Reports crunched the numbers to show how much you'd pay to send $200 and $1,000 to Mexico using 12 different services, taking into account the exchange rate and fees, in effect on one particular day, method of funding, and time to complete the transfer. For sending $200, the difference between the least- and best-value service was about 202 more pesos, equal to about $16 U.S. For sending $1,000, the difference amounted to about 700 pesos, the equivalent of about $55 U.S.

When choosing between a company that has a higher fee but also a higher exchange rate and one with a lower fee and lower exchange rate, the best way to compare them is to calculate the effective exchange rate, which takes into account both the exchange rate and any fees. Add the amount you're sending and all fees. Then divide that number into the amount of currency to be delivered. The result is the effective exchange rate that offers company with the highest result is the best value.

Other tips:

• Decide how quickly it needs to get there. Don't pay extra to get the money there in a few hours if a day or several days will do.
• Look for tiers. Fees can vary depending on how much you send. When sending to India, for example, Xoom drops its transfer fee if you send more than $1,000 and pay through a bank account. Conversely, with some services sending higher amounts might cost you more. So adjusting the amount you send may result in lower fees.
• Avoid sending too often. You can avoid extra transfer fees entirely by including more money each time and reducing the number of times you send overall. But verify that the additional amount doesn't unreasonably increase the fee.
• Avoid automatic transfers. Some services let you transfer a certain amount automatically every month or so. But any of those transfers might occur when exchange rates are particularly unfavorable.
• Look for special deals. You may get a better deal if you meet certain conditions. For example, Wells Fargo cuts remittance fees for customers with accounts that meet certain minimum balance requirements.

Consumer Reports is the world's largest independent product-testing organization. Using its more than 50 labs, auto test center, and survey research center, the nonprofit annually rates thousands of products and services. Founded in 1936, Consumer Reports has over 8 million subscribers to its magazine, website and other publications.  Its advocacy division, Consumers Union, works for health reform, food and product safety, financial reform, and other consumer issues in Washington, D.C., the states, and in the marketplace.

MARCH  2012
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SOURCE Consumer Reports