Sending money used to be quite the hassle. Prior to the emergence of online money transfer services, these types of transactions had to go through banks. Transfers used to take over twenty-four hours to complete. Banks could also charge you whatever fees they wished since there wasn’t much competition. They would charge a flat wire transfer fee that could reach up to $20 per transaction. If your transfer involved foreign exchanges, you’d lose buckets of money with the bank’s less than stellar exchange rates. Also, the recipient was usually charged a fee by their baking institution for receipt of the funds. All told, you would spend a good deal of money just to send money. Good thing that this is no longer the case!
Online money transfer providers are an effective replacement for transferring money quickly and cheaply. Funds can be transferred with ease and without all of the fees that banks used to charge to almost anywhere in the world. The benefit of utilizing these providers is that you can send or receive these funds securely over the internet. This eliminates the hassle and cost of going through the bank. There are many online transfer options available today. But there are a select few that have risen above their competitors. This review will compare the performance of long-standing money transfer provider, PayPal, with the cost-effective, flexible options offered by TransferWise.
Online Providers, an Overview
Since the world wide web became as massive and accessible as it is, many transfer service providers have come along to challenge banks. There are a few factors that need to be considered when selecting an online money transfer provider for your next transfer. Here’s a brief list of what you should look into before choosing:
- The exchange rates
- Fees for sending the transfer
- Fees for receiving the transfer
- How fast transfers are completed
- Your withdrawal limits
So how do TransferWise and PayPal stack up against one another? Let’s look at each point more in depth to get a clear picture.
Exchange Rates
PayPal uses a retail exchange rate when doing currency conversions. This means you pay the wholesale exchange rate plus added conversion fees. These fees vary based on the currency being converted; they are separate from the fee charged to transfer your funds. You can check your PayPal exchange rate by logging in to your account, going to summary, and selecting “currencies,” located below your balance.
TransferWise uses mid-market rates. This means you pay the price that is midway between the buying and selling price of a currency. It is also sometimes referred to as the wholesale or inter-banking rate. This rate is always lower than retail consumer rates which always contain hidden fees. You can check your Transferwise rate by going to their home page and selecting pricing, which is located at the bottom. You can also use their calculator; it gives a detailed breakdown of your entire transaction.
Below is a comparison of exchange rates from the USA to three different transfer destinations:
| Currency | Amount Sent | PayPal Rate | TransferWise Rate | PayPal Balance | TransferWise Balance | Dollar Difference |
|---|---|---|---|---|---|---|
| GBP | $1000 | 0.75391 | 0.77885 | $753.91 | $778.85 | $24.00 |
| EUR | $1000 | 0.84500 | 0.87565 | $845.00 | $875.65 | $30.65 |
| CHF | $1000 | 0.96490 | 0.99990 | $964.90 | $999.90 | $35.00 |
Transfer Fees
PayPal has a fixed amount fee for every transfer. The fee is paid by the recipient and therefore varies based on the currency they receive. All transactions in that currency pay the same fee regardless of the amount being sent. Here are some samples of the fees that will be paid by the recipient when using PayPal:
| Currency Received | PayPal Fee (USD) |
|---|---|
| Pounds | $0.20 |
| Euros | $0.35 |
| Francs | $0.55 |
TransferWise has a fixed fee percentage and dollar amount for money transfers. The fee is paid by the sender before currency conversion. It is based on the currency being sent and the currency being collected by the recipient.
Below is a comparison of fees from the USA to three transfer destinations:
| Currency | Amount | PayPal rates | TransferWise Rates | Papal fees | TransferWise Fees | PayPal final balance | TransferWise final balance | Difference |
|---|---|---|---|---|---|---|---|---|
| GBP | $1000 | 0.75391 | 0.77885 | $0.20 | $7.20 (0.6% + $1.25) | $753.75 | $772.46 | $18.71 |
| EUR | $1000 | 0.84500 | 0.87565 | $0.35 | $6.95 (0.6% + $1.00) | $844.70 | $868.90 | $24.20 |
| CHF | $1000 | 0.96490 | 0.99990 | $0.55 | $7.70 (0.55% + $2.25) | $964.37 | $992.30 | $27.93 |
PayPal’s Withdrawal Fees
PayPal does not charge a fee for withdrawals to a bank or to other PayPal accounts in the USA. However, they do charge fees for them outside of the US, such as to the UK or European countries. To withdraw to a bank outside of the USA, there’s a fee of $17.00 or 1.5% the transfer amount, whichever is greater. There is also a fee of 2.9% per transaction for payments on a merchant account.
Does TransferWise Also Charge Withdrawal Fees?
TransferWise does not charge withdrawal fees for bank transfers; however, there are charges for making payments via debit and credit cards, These are charged to the sender and not the recipient. Since payments must be made with locally issued debit or credit cards, this charge varies based on currency. The Euro incurs a 0.8% charge on debit card transactions and 1.6% when using a credit card. Meanwhile, the Franc incurs the same 0.8% charge on debit card transactions but only a 1.5% charge on credit card payments.
Expediency of Transfers
Any PayPal transactions that involve a transfer from one PayPal account to another or a transfer from your bank account to your PayPal account are all completed instantly. To withdraw funds from your PayPal account to your bank account, however, can take up to 5 days. If there is a problem with your transfer, completing the transaction can extend to over 7 days.
TransferWise card payments are processed instantaneously. Bank transfers are completed within a 24-hour period. The expected time frame depends on the means used to transfer the funds, and takes anywhere from a few hours to about a day.
Withdrawal Limits
PayPal has a withdrawal limit of $500 per month on unverified accounts. To remove these limits, a linked and confirmed bank account is needed. Additionally, a debit or credit card must be linked and verified. For business accounts, relevant business information must be submitted. Only then will your account will be pretty much without limits. If your account remains unverified, however, once your the $500 limit is reached, you will not be able to complete transactions of this type until the next calendar month.
TransferWise withdrawal limits are based on your withdrawal type. Debit limits are $10,000.00 per 24-hour period. Business transfers are allowed a limit of $250,000.00. The limit on all other payment methods is $50,000.00 per order for every 24-hour period.
Bottom Line
PayPal says that there are fees attached to conversions, transfers, and withdrawals and that there are limits imposed on accounts; however, the actual value of these charges and limits are not readily available. To gain access to these rates, fees, and limits, you must have an account. Calculators on conversions and information on going rates can only be obtained at the processing window, making it impossible to compare costs on identical transactions with other providers if you do not have an account. This practice makes information gathering less transparent.
TransferWise openly states their fees and rates attached to conversions, transfers, and withdrawals up front. These fees are taken out before conversion and are paid by the sender; the recipient receives the full amount of the converted balance. They provide a calculator on their site that previews not only the mid-market rate of a currency but also the fees for each payment method. This information is available to everyone on their website, regardless of whether you currently utilize their service or not. This makes it easy to gather information on a transaction and compare it with other providers. This practice promotes transparency and makes choosing your provider simple.
Conclusion
PayPal is wonderful for buying and selling services and merchandise online. This service is convenient and popular, but it consistently features high transaction fees and poor exchange rates that reflect high retail markups. PayPal might be great for making online purchases, but it’s massive fees and bad exchange rates make it worse for transferring money, especially overseas.
TransferWise was designed specifically for online money transfers. They offer mid-market exchange rates without any markups. They have low transfer fees, and their charges are displayed and paid upfront, making them more transparent than PayPal. They are fantastic for sending money just about anywhere in the world into nearly any currency.
All important aspects considered, PayPal continues to hold a good reputation as an online provider. However, if you are looking for an affordable, cost-effective, and flexible option, TransferWise is certainly worth your consideration. While they might not be as well-known as PayPal, they will certainly save you a bundle in fees, conversion rates, and loads of your time too.
