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Updated on Friday, July 19, 2019
America has long been a land of opportunity, where people could come from other parts of the world to build a better life. Many of these newcomers work hard to provide money and support for their families back home, boosting both countries’ economies in the process. When you send money this way, it’s known as a remittance.
Global remittances reached an all-time high of $689 billion in 2018, according to the Migration and Development Brief from The World Bank and KNOMAD. The majority of that total — $529 billion — was sent to low- and middle-income countries. In 2017, the U.S. sent the most money at around $68 billion. In 2018, India was the largest receiver of remittances at $78.6 billion.
We’ll tell you a bit more about remittances and the different ways you can send one.
What is a remittance?
A remittance is when you send money to a person or a company as payment, including to someone in another country. Remittances usually take the form of electronic transfers, checks or money orders. Most often, remittances are sent by a worker in one country to their family in their home country. When work cannot be found at home, it’s a way to share wages to support those left behind — often in low-income, disadvantaged countries.
Dilip Ratha, lead economist at The World Bank and an author of the brief cited above, sees remittances as much more than just sending money.
“Remittances are a proven way of sharing prosperity between different places,” he said. “They are a highly visible and tangible benefit of international migration for remittance-receiving countries.”
How remittances affect source and receiving countries
For receiving countries, Ratha points to remittances playing an important role in reducing child labor in disadvantaged households across several developing countries. Remittances have also been linked to higher expenditures on education, school enrollment and years of completed schooling.
Not only that, but a 2017 Organisation for Economic Co-operation and Development report demonstrates that immigration is not a fiscal drain for the remittance source countries. “There is a common belief in many countries that immigrants are net beneficiaries of social services, and thus have a negative fiscal impact,” the report states. In fact, the OECD found the opposite to be true. Immigration and remittances have provided a net positive fiscal effect for these countries.
“For remittance source countries, the remittances are derived from the labor, innovation and entrepreneurship income of migrant households,” Ratha said. “In almost every country, the self-employment ratio of immigrants is higher than that of natives with similar education levels.”
Immigrants are also more likely to be represented among inventors and innovators, helping boost the economy. Plus, the immigration of young workers can help ease countries’ strained pension systems.
What are my options for sending remittances?
You have a variety of options for sending remittances, including online services and money transfer services with retail locations that take cash.
Let’s take a quick look at what these services might cost. For example’s sake, let’s say you’re sending $100 from your U.S. bank account to someone in the Philippines, who will receive it in Philippine pesos.
|Service||Cost for Online Bank Transfer||Cost for Cash Pickup|
How to send remittances online
Technology has given us several different platforms to send money. Plus, it allows you to send money much faster than sending some cash in an envelope across the globe.
TransferWise allows you to send money to your recipient’s bank account in almost 50 countries around the world. Each transfer can be completed within seconds or a few days, depending on your payment type, the country you’re sending to and the country from which you’re sending. You can send a maximum of $50,000 per day with TransferWise.
TransferWise is pretty transparent about what it charges. It notes when it raises prices (last done in June 2019) and breaks down where your money goes. Like other services, TransferWise also offers a pricing calculator to indicate what your transfer will cost from the start. Plus, TransferWise guarantees getting you the best exchange rate it can. You’ll need to create a TransferWise account to use the service.
Xoom, a service from PayPal, operates entirely online. Still, along with international bank transfers, it also allows for cash pickup and even cash delivery. Xoom services are available in over 70 countries.
Xoom’s transfer fee will depend on your payment method, how much money you send, where you send the money and which currency you select for disbursement. You can pay with your bank account, credit or debit card or your PayPal account.
Remitly is a mobile-focused service that offers several options for sending and receiving money. If you’re sending money, you can choose between Express, which uses your debit or credit card to send money in minutes for a fee, and Economy, which sends money within three business days from your bank account at its lowest rate.
If you’re receiving money through Remitly, you can get money sent directly and immediately to your bank or mobile money account, instantly pick up cash at thousands of locations or have money delivered to your home within one to two days.
Remitly connects U.S. users to more than 40 countries.
How to send remittances with cash or money orders
If you’d rather send cold, hard paper, that’s still an option, too. Plus, there are remittance services that make it way faster and much safer now than sending an envelope through the mail.
We looked at what these services cost when sending money from your bank account. Using the same example — sending $100 from the U.S. to the Philippines — here’s a closer look at their fees when you send cash in person.
|Service||Cost for Account Deposit||Cost for Cash Pickup|
Western Union has been a big name in the remittance space for decades. While you can transfer money between bank accounts online (and on the Western Union app), you can also visit over 550,000 Western Union agent locations in more than 200 countries to pay for your transfer in cash — and to pick up a payment.
MoneyGram has over 350,000 locations worldwide, reaching over 200 countries. You’re able to send and receive money both online and in person. Look for MoneyGram money order signs at many supermarkets, financial institutions and check cashers. You can also use its fee estimation tool to determine the exact cost of your remittance transfer.
Ria provides access to over 369,000 locations in 149 countries. At its locations and online, you can send money through your bank account, debit or credit card and with cash. Your recipients can then receive payments in their bank accounts, as a cash pickup or delivered to their home.
How (not) to send remittances through banks or credit unions
You may want to steer clear of using your bank or credit union to send a remittance. On average, banks are the costliest channel for sending remittances. In the first quarter of 2019, banks charged an average of 10.9%, according to The World Bank and KNOMAD.
Using your bank may seem convenient, especially since you don’t have to create an entirely new account with a different service. But not all banks even offer this service, so check whether your bank allows you to make international transfers directly from your account, perhaps with a service such as Zelle. Automated Clearing House (ACH) transfers typically don’t come with fees, but you might lose some money with the bank’s high exchange rate.
Another bank option is to send a wire transfer. However, these tend to have really high fees and exchange rates.
Which is the best way to send a remittance?
The best service will largely depend on your resources and preferences. If you’re looking for the cheapest options, sending an online bank account transfer might be your best bet.
“Improved technology is likely to have had a positive impact on formal remittance flows,” Ratha said.
They’re able to lower costs and offer better exchange rates. He adds that the online remittance industry could benefit further from “harmonized regulation and adoption of innovative technologies,” which could lower remittance costs.
Of course, online transfer services have their drawbacks. TransferWise and Xoom aren’t great options if you’re dealing with cash since they don’t accept cash payments. Xoom can be good if you’re sending electronically, but your recipient needs to pick up the cash. The same is true for services including Western Union and MoneyGram.
Using Western Union, MoneyGram and other services like them are handy if you don’t have a bank account. They allow you to make your payment in cash easily at a participating location. Plus, these services have a much wider network than TransferWise and Xoom.
With such a wide selection of remittance services, you’re bound to find one — or two — that you favor over the others. Figure out what it is that you need from a service, whether that’s cash delivery or instant payment. That way, you can better weigh your options and find the right remittance service for you.