How to transfer money (legally) to the US

We describe the factors to take into account when transferring money to the US as well as the existing options, their advantages, disadvantages and risks, recommending the optimal method for every situation.

Index

Introduction

A problem that all international entrepreneurs, executives and professionals face when settling in the US is finding the optimal way to transfer money to this country. We refer both to the money used by individuals to cover their expenses, as well as the transfers necessary to finance the US subsidiaries of international companies. The differences in costs and other factors among the different channels that can be used are significant. In this article, we will discuss the issues to consider, the options available, and ways to minimize associated expenses.

We assume that an account has already been created in this country, an aspect that in the case of international companies is a unique challenge discussed in our recent article on how to open a company bank account in the US as a non-resident

Logically, when electronic transfer means are used, it will be necessary to have information about the source and destination accounts. For the beneficiary in the US, we must collect the name, personal address, branch address and the code that identifies the account, which in the US will be the ABA / RTN (Routing Number) or the SWIFT / BIC (Bank Identifier Code), they are similar to the IBAN code used in other countries.

Factors to consider

There are two fundamental factors that determine the effective amount that we will receive when transferring money to the US from other countries: 

  • Commissions: They may exist at the source and destination. They normally range from $0 to $50 depending on the case.
  • Exchange rate applied, when the source currency is different from the US dollar, as will be the case in general.

Both the commissions and the exchange rate applied may depend on the channel used and the amount transferred.

On the international currency markets, slightly different exchange rates for the buyer (‘buy’) and for the seller (‘sell’) are negotiated every day, due to commissions and intermediation margins. The midpoint between the ‘buy’ and ‘sell’ exchange rates is what is known as the interbank or ‘mid-market’ exchange rate, which is the one published in the media every day. It can be found on Google at any time (e.g. by doing a search for ‘EUR vs USD’ to find the exchange rate from Euro to US Dollar).

It is necessary to understand that this interbank or ‘mid-market’ exchange rate is not accessible to individuals or companies. There will always be a differential (‘spread’) for the intermediation which varies greatly depending on the channel used. It may exceed 5% in some cases and it usually decreases as the amount of money to be exchanged increases. Some transfer service providers have recently chosen to offer the interbank exchange rate and isolate their brokerage cost into a single fee to give maximum transparency, but this is rare.

From a cost point of view only, the best option will be the one that results in the reception of the largest amount of money possible for a given payment in the currency of origin.

For example, if we intend to spend 1,000 euros on a transfer, provider A may offer a transfer service with a commission of 30 euros and an exchange rate of $1.20 per euro. In this case, assuming there are no commissions for the reception, the amount that will arrive at the destination is (1,000 – 30) x 1.2 = $1,164.

Provider B may offer a fast, commission-free transfer, which may sound great to us, but it doesn’t give us information in advance of the exchange rate that will be used, which turns out to be $1.18 per euro. In this case, and again assuming that there are no costs at the destination, 1,000 x 1.18 = $1,180 will be received.

In this case, supplier B will be better than A, because the amount is small and the effect of the exchange rate is less than that of the commission. But for a transfer of 10,000 euros, with provider A we would receive (10,000 – 30) x 1.2 = $ 11,964 and with provider B we would get 10,000 x 1.18 = $11,800. In this case, supplier A will be a better option, because the effect of the exchange rate is larger than the impact from the commission.

There are other considerations that can affect the decision on which channel to use, such as ease, convenience, speed, risk, etc. We will discuss some of the available options below.

OPTION 1: Travel with cash

ADVANTAGES: Avoid transfer fees. 

DISADVANTAGES: Risk of loss or theft, need to obtain cash in the country of origin and to manage the currency exchange in that country or in the US, with the associated cost and usually with high exchange rates worse than other options, especially if the exchange is made at an airport.

RECOMMENDED FOR: Small amounts (less than $500) to cover the most immediate costs on arrival in case of problems with the credit cards or when they are not an option. For higher amounts, the option of traveler’s checks may be considered, they are not as popular as they used to be but allow cancellation in case of loss, although they will require you to visit a bank on arrival to convert them into cash.

BEWARE OF: The limitations or reporting obligations that the country of origin may establish on the outflow of foreign currency should be verified. In the US there is no limitation on the amount of cash that can be introduced when arriving from abroad, but amounts greater than $10,000 (in cash, traveler’s checks and money orders) must be declared using forms 6059B and FinCEN 105. Failure to do so may result in confiscation of the money by US authorities, as well as possible civil and criminal penalties.

OPTION 2: Use of debit cards from the country of origin to get cash from ATMs in the US

ADVANTAGES: Convenience, cash can be obtained as needed and cards can be canceled in case of theft or loss. The exchange rate applied depends on the card issuer (Visa, Mastercard, American Express, etc.) but it is very close to the interbank rate, so it is typically much better than that obtained when exchanging cash or making wire transfers.

DISADVANTAGES: Risk of theft or loss. The applied exchange rate is normally better than the one obtained when exchanging money in cash but it can be worse than the one offered by some transfer services such as those of Option 5

RECOMMENDED FOR: Paying for small expenses that must be covered in cash until a bank account has been established in the US and funds have been transferred.

BEWARE OF: ATM fees are sometimes excessive. Confirm before the trip with the bank that issued the card that it can be used in the US and verify additional commissions that may be applicable.

OPTION 3: Use of credit cards from the country of origin for payments in the US

We include in this option the use of electronic payment systems available for mobile phones, such as Apple Pay, Google Wallet and others, which imply the charge on a credit card. 

ADVANTAGES: Convenience, can be canceled in case of theft or loss. The applied rate depends on the card, but it is very close to the interbank rate, so it is much better than the one obtained when exchanging cash or making transfers. Possibility of earning points or bonuses from the card issuer.

DISADVANTAGES: Not all payments can be made by credit card. They are rejected by many providers of services to companies and for certain services to people (for example, housing rentals) due to the commissions charged by the card issuers.

RECOMMENDED FOR: Covering travel, shopping and other expenses until a US bank account has been established, funds have been transferred and US credit cards are received.

BEWARE OF: Confirm before the trip with the bank that issued the card that it can be used in the US and verify additional commissions that may be applicable in international charges. When using the card in the US, avoid being charged in the currency of the card’s country of origin (trick used by some companies to earn a commission by applying an exchange rate that is favorable for them).

OPTION 4: Bank wire transfer

We include in this option traditional banking entities and specialized financial entities such as Western Union or MoneyGram that have branches in some countries. 

ADVANTAGES: Convenience, avoids the risks of the previous options and allows the use of well-established channels when the source and destination banks are reliable entities.

DISADVANTAGES: Commissions from the source and destination banks and sometimes from intermediary banks. If the transfer involves a currency exchange, the exchange rate to be applied is usually unknown a priori as the exchange will probably be handled by the destination bank. The applied rate is usually considerably more unfavorable than that of other options presented, up to 5% worse than the “mid-market” rate. It usually takes several days to complete the transaction.

RECOMMENDED FOR: Very conservative people who do not mind paying more to use only well-established banking entities. Users of banks with branches in the countries of origin and destination, who can obtain accurate information in advance of the cost and exchange rate applicable to the transaction. Clients who do not feel comfortable performing the electronic transfer themselves and prefer personalized attention.

BEWARE OF: Hidden fees, abusive exchange rates. It is advisable to inquire in advance at both the source and destination banks about commissions and currency exchange rates that can be expected to avoid surprises.

OPTION 5: Independent online platforms

In recent times, a great diversity of innovative online platforms for international transfers over the Internet or from mobile phones have proliferated, most of them British or Australian. We refer to companies such as Transferwise, Revolut, Xoom (a Paypal service), OFX or World Remit . There is also the option to use  PayPal to transfer money among people who already have an account on the platform. They can be used for small or large amounts (Transferwise accepts up to a million dollars). Some of them allow the charge to be made to an originating account, to a credit card or in other ways.

ADVANTAGES: Flexibility, low commissions, attractive exchange rates, speed (variable depending on the type of service used), cost transparency.

DISADVANTAGES: In general, they do not provide the personalized attention that can be obtained in a bank branch. 

RECOMMENDED FOR: Electronic transfers of amounts not exceeding $10,000. For higher amounts, it is advisable to compare these options with what the companies described in Option 6 offer.

BEWARE OF: Possible instability of the company, especially when transferring large amounts. Some of them are still in the start-up phase, trying to capture market share and offering commissions so low that they raise doubts about their long-term solvency. Cost models are dynamic, they depend on the amount to be transferred and evolve, so it is advisable to compare the cost of various options when the amount is greater than $1,000, which can be done in a few minutes.

OPTION 6: Currency brokers

There are a number of companies like Currencies Direct, Moneycorp, Venstar Exchange, Torfx or Global Reach who buy and sell a huge volume of currencies every day. Therefore, they have access to exchange rates that, for transfers of large amounts of money, can sometimes be more competitive than those of the online platforms described in the previous point.

ADVANTAGES: Possibility of offering the most attractive exchange rate.

DISADVANTAGES: Less flexibility than online platforms, it may be necessary to have a phone conversation with the broker that is going to carry out the operation, usually English-speaking. 

RECOMMENDED FOR: Transfers of large amounts of money.

BEWARE OF: Have a good understanding of the process, which usually involves making a transfer to the broker. Avoid using small or young companies that may represent a risk, even if they offer a very attractive exchange rate.

Taxes and reporting obligations

Although it is necessary to review the tax laws of the countries of origin and destination, in general currency transfers are not subject to taxes or limitations. Obviously there will exist tax obligations associated with the income that led to the corresponding cash flows and that will have to be analyzed by a tax professional. There may also exist reporting obligations in the country of origin.

Regarding reporting obligations in the US, we have already mentioned, when talking about travel with cash,  the need to declare amounts higher than $10,000 when they are introduced into the country during a trip. On the other hand, US banks have a legal obligation to inform the government through the Financial Crimes Enforcement Network (FinCen) of transactions involving:

  • Cash inflows or outflows of more than $10,000 in one day
  • Currency exchanges of more than $1,000 in one day
  • Any suspicious transaction over $2,000
Banks are also required to collect and maintain information on transactions involving movements of more than $3,000 in a day associated with the same customer.

Conclusions and recommendations

Until recently it has always been advisable to have a few dollars when moving to the US for small expenses and for services where it was not always possible to use a credit card. COVID-19 has increased enormously the interest in being able to make contactless payments, which is already possible in most cases. Even so, it is always advisable to have some cash for the transfer, which can be obtained at the bank of origin or through an ATM when arriving in the US using a debit card from companies such as Visa or Mastercard.

For initial expenses and until a bank account and credit cards are available in the US, it is reasonable to use credit cards from the country of origin, with the precautions we have indicated. 

For transfers of amounts lower than $10,000, online platforms such as those mentioned in Option 5 provide very competitive commissions and exchange rates as well as great ease of use. It is possible to compare very quickly the cost of each one for a specific date and choose the alternative that is most competitive.

For transfers of amounts greater than $10,000 it is advisable to contact several brokers as indicated in Option 6 and compare them to choose the most suitable, without losing sight of the online platforms mentioned in the Option 5 . A small difference in the exchange rate can save hundreds or thousands of dollars when we are sending large amounts of money.

In general terms, the default use of direct bank wire transfers should be avoided, due to the lack of transparency, the high commissions and the application of exchange rates that are much less favorable than those of the other options mentioned. At least, we should obtain reliable information on the amount that will be received at the destination bank and compare it with the other alternatives we have presented.

For transfers of large amounts, it will be necessary to review the information obligations of the country of origin and those already mentioned about the US.

This article is purely informative. Markentry USA accepts no responsibility for errors or omissions that may have been included by accident.