Converting and Sending Currency via PayPal – How does it compare?

Converting and Sending Currency via PayPal – How does it compare? Let’s explore.

Paypal is famous for being a fast and reliable way to transfer money, but in some cases, their fees can really add up.

 

Paypal is a good option if:

  1. You’re sending money within the United States.
  2. Both you and the recipient already have a PayPal account.
  3. You can fund Paypal via a direct debit from your bank account.

 

PayPal isn’t a good option if:

  1. You are trying to fund your account with a debit or credit card.
  2. You need to transfer money internationally.

 

In these latter cases, the fees can mount up quickly and will often run between 1% and 4% of the amount you transfer.

 

The Currency Shop says:

  • If your main criteria are speed and convenience (and you don’t mind a few extra fees) Paypal is a good choice.
  • In most other situations you’d be better off using a dedicated currency provider. With them you’re more likely to get a better exchange rate and pay lower fees.

 

What we will cover

Paypal is the world’s most recognizable name when it comes to online money transfer. Many people use Paypal to transfer money abroad but the truth is it may not be the best option for this.

In the following, we’ll dig into how to use Paypal to send money abroad, when it’s best used and share some tips to save you money. We’ll also let you in on the most important terms and conditions to be aware of.

  • How PayPal works.
  • PayPal fees – Hitting you in the wallet.
  • Fees – The fine print.
  • Who should use PayPal and why?

 

How PayPal works

Like any other payment platform (and most other online services), you’ll need to register and open a free account with PayPal before you can use it. You’ll need to input some basic information including name, address, and payment information. Given its huge user base Paypal has built up a solid security system to keep your data safe.

Protip: Whenever entering your financial details online check for indicators of security such as the Verisign logo or a well built professional, reputable looking website.

 

Get the PayPal address/account of the person you want to send money to

If you want to send money to a person or organization you’ll need to find out what the email associated with their Paypal account is. If they haven’t set up an account it may cause a few delays.

Protip: We’ve learned from experience that it is a good idea to confirm who you’re sending money to has a Paypal account before pulling the trigger.

 

Fund your account

In order to send money, you’ll obviously need to add some to your Paypal account. You can do this two ways: direct from your bank (fee free) or by using a debit or credit card (PayPal does charge fees for this.)

 

Send the money

Once you’ve funded your account you’re free to transfer money. You can pay in dollars and they’ll receive money in whatever the local currency is after (PayPal has exchanged the funds and deducted their fees).

 

PayPal fees – Hitting you in the wallet

Paypal makes money through commissions off of transfers. This comes in the form of charging an exchange rate slightly below the interbank rate, and by charging you (and/or possibly the receiver) fees on a transfer.

 

PayPal exchange rates

PayPal uses what’s known as a “retail exchange rate.” This rate is rarely as good as the rate you can get from dedicated currency exchange providers. The company themselves say their rate is comparable to that of an airport currency exchange. Problem is, those booths in the airport usually offer a worse exchange rate than you can get elsewhere.

Protip: Always compare exchange rates. By shopping around it’s likely you will find better deals elsewhere.

 

PayPal fees

  • You will likely pay a small fee (of 2.9% + $0.30) if: You’re transferring funds within the United States and you make the payment from your bank account. This includes debit and credit cards.
  • You will likely pay a moderate fee (of 0.5% – 3.3%) if: You’re transferring money from the US and another country and use money from your PayPal account or a direct debit from a bank account linked to your Paypal account.
  • You will pay a higher fee (of 1% – 3.9% plus a fixed fee, plus the currency conversion) if: You’re transferring money from the US and another country and you use a debit or credit card to fund your transfer.

 

Fees – The fine print

To say PayPal’s fee structure is complicated would be an understatement. They’ve created the bullet pointed (link above) explanation page to help you understand, which is helpful. But the essential takeaways are that you and/or the person receiving the money can expect to pay anything between 0.3% and 3.9% in fees to transfer money internationally (before even taking exchange rates into account).

Because Paypal charges percentages it means that the more you send the more it’s going to cost you.

Protip: Fees range 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 it to do some research and check that you’re getting a good deal.

 

Example PayPal fees

Example: Sending money from the US to the Mexico or China.

  • 3.9% (cross-border transaction fee) + $0.30 (fixed fee) + currency conversion.
  • $100 payment/transfer = $3.90 + $0.30 + currency conversion.
  • $1,000 payment/transfer = $39.00 + $0.30 + currency conversion.
  • $10,000 payment/transfer = $390.00 + $0.30 + currency conversion.

 

Nicole has a new website for her pet sitting business. To build it she hired a few people online and now she needs to pay them. She decides to go with Paypal and sends one of her contractors $1,000. She doesn’t mind the 2.9% interest +$0.30 because the work done was excellent. She is also glad her contractor is in the US and she can avoid the much higher rates for international transfers.

 

Who should use PayPal and why?

To review, It’s best to use PayPal when:

  1. You’re sending money within the United States
  2. Both you and the recipient have a PayPal account.
  3. You can fund your account via direct debit from your bank account.

 

This will ensure you keep your fees lows. PayPal is great for transferring money between friends or paying for Amazon purchases.

As soon as you decide you want to use a debit or credit card to fund your account for an international transfer, the fees add up very quickly, and can get prohibitively expensive.

On the flipside, if you just want to make a quick payment, you don’t need to transfer large amounts, and you already know the recipient’s PayPal account email address, it’s hard to beat Paypal.

In most other scenarios you will be better off using a dedicated currency provider. They will give you better exchange rates and typically charge lower fees.

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