Convert Currency For (Essentially) Free
TL;DR: Convert your currency in IBKR for a 0.2bp fee, then use Wise to transfer the desired amount for free.
This post is not about getting spending money in foreign countries. For that – you can get decent conversion rates with credit cards that have no foreign transaction fees, such as the CapitalOne SavorOne card or Discover card. You can also get decent conversions using a foreign ATM (most of the time, do make sure the ATM is with a legit bank and not a scam!). Just make sure not to get owned by those currency conversion counters or shops, like those found in airports, that charge insane spreads (think of it as a fee).
Instead, this post is about what happens if you want to send or wire a large amount of currency to another account.
The BAD Option: Most large banks in the US are not good options – they do not allow you to have accounts that allow you to hold foreign currency. They will charge something in the ballpark of 3-8% in spread (again, read fees) to convert the currency before sending the money. Then they will charge you $25-$50 to “assist you with the wire” to add insult to injury. So when it’s all said and done, if you’re transferring $10k, you’re paying roughly $550. If you’re transferring $100k you’re paying something like $5k. If you transfer a million, you’re paying $50k. Ouch.
The OKAY Option: Generally Wise is an okay option here – they will charge something in the ballpark of 40-70bps afaik. That’s 0.4% – 0.7% for most major currencies. 0.5% would mean $50 fee for a $10k conversion, $500 for $100k, and $5k for a $1mln conversion and transfer (much better than above). They do the currency conversion as well as the transfer for you, so all you have to do is hook up your bank account and you’re good to go – pretty convenient*.
The CHEAP Option: Currency conversion is the fee-heavy step in this process. This is where IBKR shines: they charge 0.2bps** in commission when converting your currency. That’s 0.002%. (They also charge even less if your trading volume is >$1bln. This I’m assuming is mostly for institutions, but could be you who knows). So that’s $1** fee for a $10k conversion, $2 fee for a $100k conversion, and $20 fee for a $1mln conversion. That’s insanely better. You can then transfer the money straight to Wise*** as IBKR has a built-in withdrawal method for Wise, where you can send/wire the foreign currency to the intended destination for free.
To recap, if you needed convert $1mln (set for maximum dramatic effect) and send it:
Big Banks would charge you roughly $50k. Wise by itself would charge you roughly $5k. IBKR + Wise combo would cost $20.
That’s an insane difference.
Happy forex transferring!
TheJKW
* Wise is a cheap and low fee service, but customer service leaves something to be desired. You can only call them on work days in a pretty limited time window. The quality of information I’ve gotten from the representatives have also been hit or miss.
** Minimum commission of $1 applies here
*** Withdrawal fee is $1, with one free every month. Withdrawal limit for now seems like $1mln per 5 business days.