Sending Money With PayPal: Should You Use Them?

Converting and sending money with PayPal could be the ideal choice if:PayPal Logo

  1. You’re sending money with PayPal within the same country in the same currency (i.e not overseas).
  2. The recipient also has a PayPal account as well as you.
  3. You fund your account from your bank account via a direct debit.


PayPal isn’t the best choice if:

  1. You’re funding your account from a debit or credit card.
  2. You’re transferring your money overseas.


In both of these cases you’ll see that costs mount up very quickly and can be anything between 3% and 7% of the funds you are transferring.


The Currency Shop says:

  • For quickness, ease of use and if the amount you are sending is fairly small then PayPal could be a good choice. As long as you don’t mind paying the fees.
  • For the most part it’s better to use a dedicated currency provider. The exchange rate you get will be more favourable and the fees will certainly be lower.


PayPal has established itself as one of the most popular ways to pay for goods and services online and to send money to people. PayPal is also used by some people to transfer money overseas but it isn’t always the best choice.


We’ll look into how to make the best use of PayPal to send money overseas, consider when it’s best to use it and when it might be best to consider another option to send funds. There are also finer details to be aware of and we’ll share some of those with you:


  • How does PayPal work?
  • PayPal fees – Higher costs.
  • Fees – The details you need to know.
  • When to best use PayPal.


How does PayPal work?


Opening an account

As with most online services you will first need to open a PayPal account and this is free to do. You need to give them your name, address and various other personal information which includes how you’d like to fund the account. Concerns about your personal information should be low.  As PayPal is one of the most popular payment systems in the world, security is very strong.


Pro Tip:  Although PayPal is highly secure, it is always best to check security when signing up to anything on-line.


Know the PayPal details of the person you’re seeing funds to

When you want to transfer money to someone, you first need to know their account details.  In most cases this will be the email address they use for the account.  If the person you are sending money to doesn’t have a PayPal account then they will need to set one up before the transfer can commence.


Pro Tip: If you’re sending money to someone via PayPal and they haven’t got a PayPal account, they will need to set one up in order to retrieve the funds.  Before you decide to use PayPal to send funds always check that the other person has an account.


Fund your account

You’ll need to ensure you have money in your account before you can send any. It’s best to do this direct from your bank account as PayPal charges fees for using a debit or credit card.


Transfer the money

You are now ready to send the money. You’ll pay in your currency and they’ll receive the funds in their currency. The currency will be exchanged by PayPal and they will deduct their fees before the transfer takes place.


Expensive PayPal fees

There are two primary ways in which PayPal makes money. Firstly they provide you with an exchange rate that is below the interbank rate. Secondly they charge you fees for making the transfer. They may also charge the receiver.


Exchange rates with PayPal

PayPal uses the ‘retail exchange rate’. This rate is lower that the one you would be given by dedicated currency exchange providers. The best comparison is with the higher exchange rates you receive at an airport. They are never going to be the lowest exchange rates available.


Tip:  Compare exchange rates before every transaction you make. You will find better deals if you shop around.


PayPal fees – Higher costs

  • Fees may be small if you’re not transferring money internationally and you fund the payment from your British bank account that is not linked to your PayPal account.
  • The fee may be moderate if you’re transferring money overseas and you fund the payment from existing funds in your PayPal account or through a direct debit from a bank account linked to your PayPal account.
  • The fee may be high if you’re sending money abroad and you fund the transfer using a debit or credit card.


Warning:  Keep an eye on the fees as they can add up very quickly, especially if you are transferring funds internationally and you are using a debit or credit card to fund them.  When using PayPal to transfer funds abroad always use a direct debit from a bank account whenever possible.


Fees – The details you need to know

The British fee structure that PayPal has in place is complicated. Very complicated!


It is over 8,000 words long, split into twenty three headings with over twenty information tables. You’ll certainly need to set some time aside to get through it all. The main things that you and the person receiving the money need to bear in mind are that either of you will be subject to fees of between 0.5% and 7.5%. That is before the exchange rates are taken into account.


PayPal charges percentages rather than fixed fees. The upshot of this is that the larger the funds being transferred the more commission PayPal will charge.


Tip: The deciding factors as to how much you pay in fees are, where the money is sent from, how the payment has been funded and the location of the receiver.  It’s always best to research the costs thoroughly before making a transfer.


PayPal fees example

Here are some typical fees charged by PayPal for international transfers.


  • 0.5% – 3.3%. This is a cross border transaction fee charged by PayPal when funds have come from a PayPal account or from a direct debit from a bank account linked to PayPal.
  • 3.9% – 7.4%. This is a cross border transaction fee charged by PayPal for debit or credit card funded transfers.  A fixed fee of approximately £0.30 is also added plus the currency conversion rate needs to be considered.

Example:  Sending money from UK to US, Australia 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.


When sending British pounds overseas you won’t be subject to currency conversion.  When you fund your account by direct debit the currency conversion fee is lower. You’ll still be charged commission if you send a foreign currency.


When to best use PayPal

PayPal is the best option when:

  1. You’re sending money within the borders of the same country, not overseas.
  2. The recipient and yourself both have PayPal accounts.
  3. Your PayPal account is funded via a direct debit from your bank account.


When used in these ways you can ensure your fees are key to a minimum. PayPal is still an excellent way to transfer funds to other friends within the UK or to pay for purchases on eBay.


If you fund your account via a debit or credit card and you want to send money internationally then this is where you will see your fees increase exponentially. If quickness and convenience are more important than fees and the amounts you are sending are small then PayPal will still be your best option.


In most circumstances however, you will be better off using a dedicated currency provider. The exchange rates will be more favourable and the fees smaller.


Case Study

Robert lives in the UK and has a daughter who is travelling around Australia. As he regularly sends small amounts of money from his PayPal account to hers, funding the transactions through a credit card.


He knows the fees are higher than if he used a dedicated currency provider but he likes the convenience and security offered by PayPal. He found that he was able to continue using PayPal but significantly reduce his fees just by changing the way he funded his PayPal account from a credit card to a direct debit from his bank account.

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