5 MIN READ
People have a lot of reasons for wanting to send money across borders. Top reasons for sending money across borders include supporting family, repaying debts, and making purchases in one’s home country.
If you’ve ever electronically transferred money to another person or business, you’re likely familiar with the term remittance. International remittance is fairly common, and the term is used to describe the process of sending money to or receiving money from another country. According to a recent Pew Research report, over $138 billion (USD) was sent to other countries from the United States in 2016. Globally, over $574 billion (USD) is remitted across all borders.
You have several options for remitting money across borders.
- Option 1: Banks or Credit Unions can send wire transfers or ACH payments
- Option 2: Money Transfer Services like Remitly, Wise, RIA, Western Union can send money online or from a physical location
- Option 3: Checks or Money Orders can be mailed or brought by a courier to a recipient
- Option 4: Prepaid Debit Cards or Gift Cards can be mailed or brought by a courier to a recipient
How should I choose?
- Banks and credit unions are safer and are recommended for large remittances
- Banks and credit unions require more information from you
- Banks and credit unions typically require that you have an account before allowing you to remit money
- Banks and credit unions often offer you a better exchange rate
- Money transfer services are faster
Sahil Vakil, CFA, CFP at MYRA, recommends that consumers do business with providers who are subject to CFPB laws on remittances. “If you’re going to send money to a family member in another country, you want to minimize risk.” He recommends that his clients choose a bank or credit union if they have a choice.
Make sure to understand the fees
Inward and outward remittances can be costly. Credit unions are likely to be less expensive than banks when it comes to fees. If you plan to send a large amount of money on an irregular basis, a bank or credit union might be a good choice. On the other hand, if you plan to remit small amounts of money or conduct regular remittances, a money transfer service might be a better option. The average remittance fee is $14 per $200 sent or approximately 6.96% of the amount sent. Larger amounts are typically cheaper (as a percentage of the amount sent). It’s easy to compare fees on the company websites.
The fees you pay when you remit funds to a source abroad will typically include:
- Fees charged by the remittance provider
- Extra cost on top of the exchange rate, sometimes called a margin
- Intermediate or recipient bank SWIFT fees
The exchange rate, while not a fee, may reduce the amount of funds received by the recipient.
In some instances, the recipient of the funds may also have to pay fees before he/she can access the money.
Know what to do if problems arise
Thanks to the Consumer Financial Protection Bureau (CFPB) in the United States, updated rules were published in 2013 to protect consumers who remit money with companies that process >100 remittances annually. These rules cover error resolution, disclosure, and cancellation rights.
The CFPB provides for certain protections should a transfer error occur, or should you decide to cancel the transaction. If you change your mind or have another reason to void the transaction, it can be canceled within 30 minutes of submission at no charge if the recipient has not already received the funds.
Using a physical check or money order to send money is possible but has limitations
Checks, money orders, and prepaid cards are viable options for remitting funds. None of these options put money in the hands of the recipient as fast as an electronic transfer using a remittance transfer provider, but they still might be worth considering.
The recipient may have difficulty cashing a check or money order if he/she doesn’t have a bank account. Of course, this is dependent upon the country you are sending the money. If a large sum of money is being sent abroad, you will also need to consider how the recipient will safeguard the money if she does not have a bank account. Prepaid cards typically have high fees and have limitations as some retailers may not accept the particular card. Some may even charge the user fees each time they use the card.
Each country may have unique remittance requirements for remittances into and out of the US
For example, for remittances FROM India TO the US, the maximum outward remittance per India’s fiscal year is $250,000 (USD) and there may be required documentation. India’s fiscal year is April 1 to March 31. The required documentation may vary based on the intended use of funds. In each case, the documents must support the stated remittance request. A general outward remittance from India requires residents to have a Permanent Account Number (PAN), an Aadhar Card, and completed FORM A2. You may also need to get a CA (India CPA equivalent) to provide a signed & notarized letter stating the source of funds was legitimate and taxes on those funds have been paid.
Don’t forget, if you receive >$100,000 from a foreign source, you also need to file Form 3520. The recipient of the funds is responsible for filing Form 3520.
For remittances TO India FROM the US, you’ll need to provide a government issued identification card and secondary identification (like a social security card or passport) if you want to send >$10,000. You may also be required to state or otherwise demonstrate your relationship with the receiver and you may be asked The maximum amount that can be sent per transaction will vary based on the remittance transfer provider.
Before you remit, be sure to research fees and required forms so that your money can get where it needs to go without delay.