Should You Use PayPal to Send Money Overseas?

In a nutshell:

You can use PayPal to send money internationally. If it's to another PayPal account, you can do so through the PayPal app and website. If it's to a recipient outside of PayPal, you'll be redirected to the PayPal-owned money transfer service Xoom to complete the transfer. Be warned, though: transferring money internationally with PayPal comes at a cost, with fees varying between 3% to 7% of the transfer amount.

PayPal is a good choice if:

• You are sending money in the same country (not across international borders).
• Both you and the recipient have a PayPal account.
• You can fund your account via direct debit from your bank account.

PayPal is not a good choice if:

• You need to fund your account via a debit or credit card.
• You are transferring money internationally.
• In these cases, the costs can add up very quickly and will often be between 3% and 7% of the amount you transfer.

Alternatives to PayPal

• • If you want speed, convenience, are transferring a small amount and do not mind paying the fees, PayPal is a reasonable choice.
  • In other circumstances, you might be better off using other providers like CurrencyFair or Wise Borderless Account (formerly TransferWise).

What we will cover

1. How PayPal works
2. PayPal fees
3. PayPal Exchange Rates
4. Who should use PayPal and why?

PayPal Exchange Rates

PayPal uses what's called a "retail exchange rate." This rate is seldom as good as the rate you can get from dedicated currency exchange providers.

PayPal themselves say the rate should be compared to an airport currency exchange rate. Unfortunately, airport exchange rates are always higher than you can get elsewhere.

The Currency Shop Says

• Tip: Always compare money transfer exchange rates ; it's very likely you will find better deals elsewhere.

Who should use PayPal and why?

It's best to use PayPal when:

1. You're sending money in the same country (not across international borders).
2. Both you and the recipient have a PayPal account.
3. You can fund your account via direct debit from your bank account.

The Currency Shop Says

• In almost all other circumstances you will be better off using a dedicated currency provider. They will give you better exchange rates and charge lower fees.
• PayPal is great for transferring money between friends in Australia, or paying for ebay purchases. But not for large amounts.
• It is fast and convenient, but their fee structure can be complicated
• Avoid using a debit or credit card to fund your account or to send money internationally, the fees add up very quickly

Frequently Asked Questions

How are PayPal fees calculated?

Here are the fees typically charged by PayPal for international transfers.

• A transaction fee of 5% of funds transferred with a minimum of $0.99 and maximum of $5.99 for the transaction fee from a PayPal account or a bank account linked to PayPal
• An funding fee of 2.6% of the funds transferred + fixed fee + currency conversion if you pay with credit or debit card. This funding fee has no cap so can get very expensive.
• A currency conversion fee from 3%

Example: Sending money from Australia to the US, UK or Canada

• • $100 payment/transfer with PayPal account or bank account = $5 + currency conversion.
  • $100 payment/transfer with credit card or debit card = $5 + $2.60 + $0.30 or %C2%A30.20 + currency conversion.
  • $1,000 payment/transfer with PayPal account or bank account = $5.99 + currency conversion.
  • $1,000 payment/transfer with credit card or debit card = $5.99 + $26 + $0.30 or %C2%A30.20 + currency conversion.
  • $10,000 payment/transfer with PayPal account or bank account = $5.99 + currency conversion.
  • $10,000 payment/transfer with credit card or debit card = $5.99 + $260 + $0.30 or %C2%A30.20 + currency conversion.

Are there any hidden PayPal fees?

To say PayPal's Australian fee structure is complicated would be a big understatement. With 23 major headings, over 20 tables and over 8,000 words, it's not for the faint-hearted.

The essential takeaways are that you and / or the person receiving the money can expect to pay anything between 0.5% and 7.5% in fees to transfer money internationally (before taking exchange rates into account).

Because PayPal tends to charge percentages, rather than fixed fees, the more money you transfer, the more you will end up paying in fees.

Tip: Fees vary depending on where the payment is being sent from, the method of payment (bank account/PayPal balance, debit card or credit card) and the payment destination. It's worth doing some research and comparison to check you're getting a fair deal.

What other options are there to transfer money internationally?

1. A Bank

Banks in Australia have higher fees and uncompetitive exchange rates but this doesn't mean you should never use them. Using a bank is also the quickest way to transfer money internationally.

2. Peer to Peer (P2P)

Instead of wiring money overseas through a bank, P2P companies that make these types of transfers match people buying currency in one country with people who are selling it in another. Wise (formerly known as TransferWise) and CurrencyFair are two of the biggest companies that offer P2P transfers and send your money this way. They are cheaper and faster than using banks.

3. A Money Transfer Company

Money Transfer Companies like XE and WorldRemit are often the cheapest option when you are sending between $1,000 and $1,000,000 at a time. This is because they offer better exchange rates and lower (and sometimes no) fees. The downside to using a transfer company outside of a bank is that you'll have to set up an account with them first. This can take between 10 minutes and 2 days depending on how much information they need from you. Also, the transfer itself will usually take 1 day longer than using a bank.