This article introduces the methods of transferring money and the associated fees.
Glossary
There isn’t a strict distinction between “transfer” and “remittance.” Nowadays, remittance usually refers to cross-border money transfers, while a transfer is the electronic movement of funds, including wire transfers.
Transfer-in bank = Remitting bank = Paying bank = Originating bank
Intermediary bank = Agent bank = Middle bank = Correspondent Bank
Transfer-out bank = Receiving bank = Beneficiary bank = Destination bank
Transfer path: Payer’s bank (→ Correspondent bank) → Recipient’s bank → Credit to account. It may not go through a correspondent bank.
Types of Remittances
According to different remittance methods, it can be divided into:
- Demand draft (D/D). The payee takes the draft to the bank to withdraw the money. No notice is required for the payee to withdraw the money.
- Mail transfer (M/T). The remitter entrusts the bank to send a mail transfer order to the receiving bank, authorizing payment of a certain amount to the payee.
- Telegraphic transfer (T/T). The bank charges the remitter a certain remittance fee, sends a telegraph or telex with a security code to the receiving bank, and instructs the payment of a certain amount to the payee.
Now demand drafts and mail transfers are less common, and telegraphic transfers are usually used. However, telegraphic transfers are no longer transmitted through early telegrams.
Methods of Transferring Money
The regions mentioned in this section refer to economic regions, such as the UK, Japan, the Eurozone, and Hong Kong, which generally overlap with “national” administrative regions.
Generally speaking, transfers through the same bank internally, interbank transfer systems within a region, and transfers within the same group of banks across regions are faster and more cost-effective.
There are four situations:
- Within the same bank in the same region
- Interbank within the same region
- Interbank across different regions
- Interbank across different regions and via correspondent banks
Within the Same Bank in the Same Region
If the payer’s and the recipient’s accounts are both opened in the same bank, the transfer only needs to be processed within the bank’s system.
Fees: Check the bank’s fee schedule.
Interbank Within the Same Region
If the payer’s and the recipient’s accounts are opened in different banks within the same region,
Transfer path: [Domestic] Paying bank → [Domestic] Receiving bank → Credit to account
Transfers can be made through the local transfer system or local wire transfer.
Through Regional Transfer System
Local interbank systems often have good transfer systems that can quickly confirm transfer instructions. For example, Hong Kong’s Faster Payment System (FPS, supports 2 currencies), Real Time Gross Settlement (RTGS / CHATS, supports 4 currencies); Macau’s Quick Pay; Singapore’s PayNow (only supports SGD); China’s central bank clearing system (non-CNY must go to the counter for transfer); and the US ACH. Currency is generally restricted.
In China, transfers through the UnionPay app are done this way.
Fees: You need to check the fee schedules of the transfer-in bank, transfer-out bank, and clearing organization. Generally, there are no fees for transfers in the local currency.
General Method
Local wire transfer. If the paying bank and the receiving bank have a reciprocal account with each other, they can directly transfer money to the other bank:
- The paying bank receives the instruction from the payer;
- The paying bank sends an instruction to the receiving bank (through a specific system, such as SWIFT) to confirm the recipient’s information;
- After the receiving bank confirms the information, the two banks start processing the remittance:
- The paying bank reduces the corresponding amount from the payer’s account;
- The receiving bank transfers the corresponding amount from the paying bank’s reciprocal account at the receiving bank to the recipient’s account;
- The remittance is complete. The balance of the paying bank’s reciprocal account at the receiving bank is reduced, and the liability of its own bank (i.e., depositor’s deposit) is also reduced accordingly. Assets and liabilities balance, and the transaction is completed;
If not, refer to the case of using a correspondent bank:
Path: [Domestic] Remitting bank → [Domestic] Intermediary bank → [Domestic] Receiving bank → Credit to account
- If there is no reciprocal account between the paying and receiving banks, a third-party bank, i.e., a correspondent bank, where both parties have opened reciprocal accounts is needed;
- After the receiving bank and the correspondent bank receive the instruction, the correspondent bank will transfer the corresponding amount from the paying bank’s account to the receiving bank’s account, and the other procedures remain the same;
- The paying bank’s liabilities (customer deposits) decrease, and its assets (balance in the correspondent bank) also decrease, and vice versa for the receiving bank.
Fees: You need to check the fee schedules of the transfer-in and transfer-out banks.
Interbank Across Different Regions
If the payer’s and the recipient’s accounts are opened in banks in different countries, and these two banks have reciprocal accounts, they can directly transfer money to the receiving bank.
Because banks in different regions are subject to different laws, even if two banks have the same name and belong to the same group, they are considered as two separate banks.
Wire transfer. Path: [Domestic] Remitting bank → [Overseas] Receiving bank → Credit to account
In countries with free capital flow, the operation is basically the same as interbank transfers in general; international interbank transfers are mainly done through IBAN (International Bank Account Number, mainly used by European banks) or SWIFT (Society for Worldwide Interbank Financial Telecommunication, most non-European banks use this system).
In countries with capital controls, such as China, whether remitting out or receiving money, you need to prepare sufficient relevant transaction documents for filing, and then go through a certain approval process before the remittance can be completed.
Fees: You need to check the fee schedules of the transfer-in and transfer-out banks. Transfers within the same group of banks may have discounts.
Interbank Across Different Regions and via Correspondent Banks
Wire transfer. Path: [Domestic] Remitting bank → [Overseas] Intermediary bank → [Overseas] Receiving bank → Credit to account
- If there is no reciprocal account between the paying and receiving banks, a third-party bank, i.e., a correspondent bank, where both parties have opened reciprocal accounts is needed;
- After the receiving bank and the correspondent bank receive the instruction, the correspondent bank will transfer the corresponding amount from the paying bank’s account to the receiving bank’s account, and the other procedures remain the same;
- The paying bank’s liabilities (customer deposits) decrease, and its assets (balance in the correspondent bank) also decrease, and vice versa for the receiving bank.
There may be more than one correspondent bank.
In general, the remitting bank will choose its own overseas bank (if any) as the intermediary bank. The choice of the intermediary bank is also related to the currency.
The remitter can specify the intermediary bank (but may add other intermediary banks on this basis). The receiving bank will give advice on the intermediary bank for the receiving currency, and generally designate this bank.
Fees: You need to know the remittance path and check the fee schedules of the remitting bank, receiving bank, and intermediary bank.
Composition of Wire Transfer Fees
Wire transfer path: Remitting bank → Intermediary bank → Receiving bank → Credit to account
The composition of wire transfer fees is shown in the table below.
Fee Item | Content |
---|---|
Outgoing Fees | Fees charged by the remitting bank, including handling fee (the bank’s own remittance fee) and telegraph fee (fee for sending a telegram to the intermediary bank) |
Correspondent Bank Fees | Commission charged by the correspondent bank, the actual amount depends on the correspondent bank. The more intermediary banks, the higher the fee |
Incoming Fees | Fees charged by the receiving bank |
Exchange Rate Spread | The exchange rate difference earned by the bank when exchanging foreign currency, deducted when exchanging currency |
Allocation Methods of Wire Transfer Fees
- SHA: The remitter pays the local fees, and the payee pays the overseas bank fees. The payee will receive the remittance balance after deducting overseas bank fees.
- OUR: The remitter pays all local and overseas bank fees. The payee will receive the full amount remitted by the remitting bank.
- BEN: The payee pays all local and overseas bank fees. The payee will receive the remittance balance after deducting the above fees.
When the incoming fee is paid by the payee, some receiving banks will provide an exemption.
SHA Mode
SHA = SHARED, which means that both parties share the fees. The payer bears the outgoing handling fee, and the payee bears the intermediary bank fees and the receiving bank fees (most banks do not charge for incoming fees).
This sharing method is used by default.
Using the SHA mode to remit $1,000, the payer may need to pay about $20 in handling fees, the intermediary bank will deduct $20, and the payee will actually receive $960. Many wire transfers use the SHA mode, which generally has lower fees.
However, since the intermediary bank’s fees are unclear, the actual amount reaching the other party’s account is uncertain, so this method should be avoided when paying tuition fees to foreign schools.
OUR Mode
OUR means that the payer bears all the fees.
Using the OUR mode to remit $1,000, the payer may need to pay about $30-40 in handling fees, and the payee will actually receive $1,000. In terms of overall costs, the OUR mode is mostly less expensive than the previous two modes.
International students should choose this mode when paying tuition fees to foreign schools.
BEN Mode
BEN = beneficiary, which means that the payee bears all fees. Using the BEN mode to remit $1,000, the payer does not need to pay any additional fees, but the payee needs to pay the outgoing fees (about $20) and the intermediary bank fees (about $20), and the payee will actually receive about $960.
Many banks do not support this mode.
Related Suggestions and Tips
In addition to checking the fee schedule to understand the specific fees, you can also ask others who have used the same transfer path about the specific costs.
Transfer fees are related to the amount of the transfer.
The fee schedule for personal accounts and company accounts is different.
Some banks will provide the transfer path and detailed fees after the remittance is completed.
When you need to make a cross-border remittance, it is recommended to choose according to the following priority and check the required fees in advance:
- Cross-border transfers between banks within the same group
- Other wire transfers with relatively low fees
When you expect to need to transfer funds across borders, such as paying overseas tuition and accommodation fees, it is recommended to open a local bank account in advance and remit funds to that account for storage. When needed, transfer directly through the local interbank clearing system.
You can plan a cost-effective transfer path in advance. For example, [Domestic] Bank A → [Domestic] Bank B → [Overseas] Overseas branch C of Bank B → [Overseas] Bank D that charges fees → Complete payment. In this process, you need to have accounts with A, B, and C. And it is generally necessary to ensure that C to D is a full amount transfer.
Reference
How do banks settle after an international wire transfer? - Zhihu
About Bank Account Transfers | eHow
Society for Worldwide Interbank Financial Telecommunication (SWIFT redirects here) - Wikipedia
What is a wire transfer? Learn about how wire transfers work, fees and time required - Wise
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