Anyone who does business overseas is likely to run into a scenario in which they need to make a telegraphic transfer. Telegraphic transfers can be made by individuals for personal reasons or by businesses with overseas suppliers — like if you use Alibaba or AliExpress for example. If you’ve ever wondered about what exactly a telegraphic transfer is or whether it’s the best way to transfer funds overseas, you need to read on. The bottom line is that you may be able to save money on overseas transfers by using a money transfer service like TransferWise instead of a bank — but more on that later.
Historically, a “telegraphic transfer” referred to a money transfer that was sent using telex, which meant sending money via an antiquated cable, radio or telephone system. These days, a telegraphic transfer is just a money transfer — the same thing as a wire transfer.¹ You may see it referred to as a telex transfer, a TT, a T/T, a TT bank payment or just a wire transfer; they all mean the same thing. The term “telegraphic transfer” is more common nowadays in certain parts of the world — it’s used extensively in the UK, Australia and New Zealand to describe electronic money transfers, either domestic or international. In the US, you’re more likely to see these referred to as wire transfers.
A telegraphic transfer LC payment, or letter of credit payment, is a payment that’s arranged in advance, but not made until certain conditions are met.² For example, your business could arrange a TT LC payment with your overseas supplier, setting up documents between your bank and the supplier’s bank to guarantee the payment is completed once, say, goods are shipped. A LC payment is like a contract in that it offers a lot of protection to both parties to ensure that goods are received and payment is made.² Since two banks and a lot of paperwork are involved in setting up a letter of credit, it can be time-consuming and expensive to pay suppliers this way.
A TT in advance payment is sort of the opposite of a LC payment in that payment is sent before goods are shipped. This is often faster and cheaper since there’s less paperwork to arrange, but businesses are assuming a lot of risk since it's possible for the supplier to take the payment and not send the goods.³
In a normal international telegraphic transfer, the sender, or remitter, tells their bank they want to send money to the recipient, or beneficiary.4 Depending on the bank and its policies, this can be done at a branch, by mail or fax, over the phone or via online or mobile banking. The sender’s bank will then send the money to a bank that it works within the recipient’s country or region. If the recipient has an account with that bank, the funds are converted to the correct currency and transferred into his or her account and the transfer is complete. If not, that bank acts as an intermediary bank. It may still do the currency conversion, as well as charge a fee for handling a small part of the transfer, before it forwards the money on to either another intermediary bank or the recipient’s bank.4
Wire transfers and telegraphic transfers are the same thing, and they may also be referred to as “money transfers,” “international payments,” or “SWIFT transfers.” They all use the SWIFT system, which is a secure messaging system used by banks to quickly and accurately send each other messages and instructions for moving money across borders.
While the SWIFT system makes it fast, easy and secure to send money across international borders, it also comes with one big downside: fees. A SWIFT transfer can pass through several intermediary banks on the way to its destination, and each of those banks is able to charge a fee, just for handing off the transfer information to the next bank in line. Intermediary banks are also often the ones that convert the transfer from the sender’s currency to the recipient’s currency, but regardless of which bank in the process does the conversion, it’s likely that it’s marking up the exchange rate by 3-5%. You can see how all these hidden fees can add up fast.
It might be worth your time to look into an alternative money transfer service like TransferWise. TransferWise always moves money at the real mid-market rate, so there are never hidden fees from marked-up exchange rates. You just have to gather some of the same information you'd need to make a telegraphic transfer and pay a small, fair transfer fee that’s stated upfront and your transfer will be on its way. It’s fast, easy, safe and can often be cheaper than a bank transfer.
TransferWise also offers borderless multi-currency accounts, which allow you to hold, manage, send and receive money in dozens of currencies all at once. Sign up is free, and there are no monthly fees for maintaining a borderless account. You can receive payments for free from the UK, US, Australia and Europe with local bank details, and sending a transfer to another country is still just a small transfer fee away.
If you still need more information before deciding how to make your transfer, these articles may help:
- How do you make a telegraphic transfer?
- How much are telegraphic transfer fees?
- How long does a telegraphic transfer take?
- What are the telegraphic transfer buying/selling rates?
- What’s the difference between a telegraphic transfer and a wire transfer?
With this information, you should be armed with what you need to choose the best transfer method that suits your needs — and your wallet.
¹https://www.ofx.com/en-gb/money-transfer/telegraphic-transfer/ (May 10th, 2018)
²https://www.quora.com/What-is-the-difference-between-an-LC-DAP-and-TT (May 10th, 2018)
³http://www.binocularschina.com/guide/payment.html (May 10th, 2018)
⁴https://bankomb.org.nz/guides-and-cases/quick-guides/payment-systems/telegraphic-transfers/ (May 10th, 2018)
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