How to Send Money to Friends and Family

You have dinner with a friend, realize you don’t have the ability to pay, but you agree to send your friend the money for your half at a later date.  How would you do this? If you’re not sure, read on to find out How To Send Money to Friends and Family.

THE STANDARDS

In Canada, there are a few standard options:

1. Get cash from an ATM and give it directly to your friend: Though, if that was an option, you might have done that before or after dinner. Maybe you’re not seeing your friend anytime soon in person and we all know not to mail cash, right?
2. Mail your friend a cheque: Though this seems really old school, it is still an option.  First you get an envelope, then a stamp, then…ok, this already seems like too many steps.
3. Regular bank transfer. With my bank, I can still do an interbank transfer to my friend if I have their account information. As I learned at the Payments Canada Summit last week, Canadians are still cautious about providing their bank details to anyone, even though they are printed at the bottom of every cheque.
4. Email Money Transfer. In Canada, all banks(most banks?) are connected via the Interac Email Money Transfer system. If you pay a monthly bank fee, then you probably have a few of these included every month. Otherwise, it’s $1 or $1.50 depending on where you bank. You just send money to someone’s email address and they take care of the depositing.

These are the standard options, within the Canadian banking system. Me, I mostly use email money transfers.

FREE ALTERNATIVES: PAYPAL AND PAYTM

They may not be on your radar, but there are many alternative ways to send money in Canada. Here are a few free options:

Paypal is a great alternative option because it’s free. Yes, if you have a personal Paypal account and you have your bank account linked to it, you can send money to someone else in Canada with a Paypal account for free. If you want to use your credit card to send money, which I don’t recommend, it will cost a small fee.

Another free option is PayTM. The general use of PayTM is a central app to pay all your bills (and accumulate points that can be used to get discounts on certain gift cards), but an added bonus is that if two people have a PayTM account in Canada, they can send funds to each other for free. Check out this PayTM review by Jessica Moorhouse

The main obstacle with most of the alternative ways to send money, is that they require both ends of the transaction to have the same app, or software, installed. And often, you have to be registered with the service. For both Paypal and PayTM, you need accounts on both sides, the sender might need a verified account to send a certain amount, and it could take days for the transfer to occur.

But this is simply the “price” you pay for getting your transfers for free.

NOT SO FREE ALTERNATIVES: MONEYGRAM, MONEY ORDERS AND WESTERN UNION

Just a note about MoneyGram, Canada Post money orders and Western Union.

If you really need to send cash from one place to the next without a bank account, these are your main options.

Just keep in mind that the fees are very large.

MoneyGram and Western Union charge $12 for $100 and it just keeps getting worse from there.

A postal money order is $7.50 for any amount, but the maximum per order is $1,000. Also, things like money orders and bank drafts are really risky. It’s like carrying around lots of cash with you. And if you’re going to mail this to someone, it could potentially get lost.

BUT WHAT IF I WANT TO SEND MONEY OUTSIDE OF CANADA?

If you have friends and family outside of Canada, the standard banking options don’t work very well for you. Maybe you can send a Canadian cheque to the US, but there are a lot of banks in the US and some of them don’t like Canadian cheques, or are unlikely to accept them. Wire transfers are still a thing, but they can cost $15-30 per wire(or more) and usually you have to go into the bank to make them happen.

There are other, more convenient ways to send money to the US and internationally, though they still cost money. Here are just a few examples:

PAYPAL

Paypal claims to only charge a flat fee if you pay using a bank account connected to your Paypal account, which is the standard setup.

This was surprising to me.

I dug deeper and found that the flat fee only applies if I’m sending money internationally, but in the same currency.

So if I have a USD balance in my account, and I send to the US, then I only pay the flat fee. But in most cases, I would be sending CAD to whatever currency around the world, so in that situation, I pay the flat fee plus a currency conversion fee.

When I tried to find out what that was, I got confused.

Paypal lacks transparency.

I can’t type in an amount in a calculator and ask Paypal to tell me how much it will cost until I’m actually doing it. This is unfortunate and other transfer companies are taking advantage of it.

Here’s an interesting analysis of sending currency internationally with Paypal.

TRANSFERWISE

On the surface they seem more expensive than Paypal, until you realize that Paypal is not very forthcoming with their total fees, as mentioned above. Transferwise breaks it down for you on the front page. You can choose your amount, method of transfer, and destination currency, and play around with the options until you are comfortable with the fee. Ultimately the main goal here is just making sure you know what you’re paying and that you are comfortable with it, right?

WORLDREMIT

On the surface Worldremit appears to have the lowest fees around. Flat fees of $3.99 CAD to convert $900 CAD into USD or GBP, but then I got a bit suspicious when I saw the transfer cost for Kenya. The fee to convert and send $900 CAD to KES(Kenyan Shillings) is only $0.01 CAD. What? How could any company make money by only charging $0.01 per transaction.

LOOK FOR THE HIDDEN FEES

This low $0.01 fee led me to a comparison of the final amount of local currency received for Transferwise vs. Worldremit.

I started with $900 CAD on both sites and picked the lowest cost transfer option on Transferwise of $7.25 CAD for a bank transfer. Then added their flat fee of $10.25 CAD.

Total Transferwise fees: $17.50 CAD
Total Worldremit fees: $0.01 CAD

Worldremit is the clear winner, right?

Sure, until I looked at the final amounts in KES that were to be received in Kenya:

Transferwise: 68,856.60 KES
Worldremit: 68,147 KES

Wait, why would the Worldremit KES amount be lower than the Transferwise KES amount, if the Worldremit fees are only $0.01 CAD?

The answer: exchange rates

Transferwise uses the real exchange rate. This is their main selling point actually. Banks and other transfer services make their money from exchange rates. The consumer generally has no idea. It’s just like mutual fund fees. The funds don’t cost anything because the fees are taken out of your returns. You don’t notice the exchange rate differences because you have nothing to compare them to.

So in reality, the Worldremit fees are not $0.01 CAD. They are closer to $27.50 CAD. A full $10 higher than Transferwise.

So be careful to check the exchange rates and fees and compare the final local currency amount received.

There are other variables to consider as well.

For example, Western Union appears to be cheaper when you use their KES calculator. Then you realize that only cash transfers are available, which may not work if the other side only accepts mobile payments(M-PESA).

And also pay attention to the amount of time it takes to get to the other side. Some transfers take minutes and others take days.

SHOP AROUND FOR THE BEST OVERALL OPTION

When sending money from point A to point B, whether it be next door, or the other side of the world, there are tons of options available now, and more are being created every day.

But before you press send, be sure to consider:

• the overall cost of the transfer(including any costs on the other end)
• your comfort level with the technology
• the time and effort it takes to get the intended funds to your friend or family member