Bank Wire Transfers or PayPal Money Transfers- Which Fee is Cheaper?

Banks charge three ways in a transfer: Outgoing fee, incoming fee, and (when appropriate) currency exchange fee.

I recently conducted a bank to bank transfer for payment. My customer owed me $800 for engineering services performed. Our entire business relationship is conducted by phone and online. In previous work, I invoiced him using Paypal. For this bill, I asked him to send a bank wire. We agreed that he would subtract the bank fee from the invoice total.

His Texas credit union charged $20 for an outgoing wire transfer. My Bank of America account charged $12 to receive it. My statement identifies the $12 expense as a "processing fee". So, the total bank charges amounted to $32 to send/receive 780 dollars U.S.

According to their site, accessed November 17, 2011, Paypal charges 2.9% to the receiver plus a flat base charge of 30 cents per transaction. The sender pays nothing. So, if I had invoiced my customer $800 for engineering services, he would have sent $800. I would have received:

$800 - (800 x .029 + .30) = $776.50

I used a bank transfer and received $800 - $20 - $12 = $ 768.00

So, the difference is $8.50 on an 800 dollar transaction, that is more than a full percent, which is significant for anyone doing business. One percent of the gross is much greater than one percent of the net.

Bank of America Domestic wire transfer fees:

outgoing: $25

incoming: $12

The $12 processing fee is what I paid. My client sent payment via his credit union, and the fee for him was $20. So, some banks charge less than BofA charges. It is likely other banks charge even more. Fees also differ between international and domestic transfers.

International Banking Fees:

These are Bank of America's International Wire Transfer Fees (Nov. 17, 2011)

Outgoing in U.S. Dollars: $45

Outgoing in foreign currency (FX): $35

Incoming: $16

Note that outgoing in FX is going to cost more than just $35. You will have to pay a conversion fee.

My wife travels to Ukraine each year. I deposit money into her Bank of America account (transfers from one BofA customer to another are free.) She can withdraw up to $300 each day. She pays a flat fee of $5.00 for each transaction plus a standard conversion fee of one percent. So, to send my wife $300, the cost is:

$5 flat non-BofA atm fee + .01 x $300 = 5 + 3 = $8.

In the example above, a domestic transfer of $800, the banks' fees totaled $32 and PayPal's fee was $23.50, making PayPal the better choice.

When is the bank cheaper?

First, if you transfer from one account to another within the same bank, it is typically free. Another of my clients also has a Bank of America account. He sends me payment by wire transfer. It is completely free.

Second, just do the math. Using the fees from above: $20 to send and $12 to receive, the cost is $32 for a bank transfer. What amount (amt), sent by PayPal equates to a fee of $32?

32.00 = .029(amt) + 0.30

Solving for amt, the result is $1,093.10 to produce the same fee.

So, any fee over $1,093.10 can be paid cheaper using a bank transfer when the total fees are $32. For greater fee amounts, just solve the above equation replacing 32.00 with the sum of fees for your sending and receiving banks.

However, note that a check in the mail can be deposited for free. transferring funds from PayPal to your banking account often produces a delay of two or three days. This is about the same time the United States Postal Service requires to deliver a letter.

Cheaper than PayPal and traditional bank wire fees both is a fairly new Internet transfer system: Xoom. Using Xoom and your bank account, you can transfer $800 to Mexico for just $4.99. The same $800 transfer using a credit or debit card will cost $24.99, however.

Like PayPal, (but totally unlike banks), Xoom has a user friendly fee calculation interface: Xoom money transfer fee

It is the same fee to send $800 to the United Kingdom: just $4.99

The maximum amount of money Xoom allows is $2999.00 dollars U.S. Fees for using a bank account are always $4.99, regardless of receiving country. However, the fees for using a credit or debit card vary greatly country by country. Use the Xoom fee calculator to check the country to which you want to send funds.