Understanding SWIFT and Correspondent Fees

The SWIFT network is a global messaging system used by banks to communicate with each other and other financial service providers.

A SWIFT transfer utilises this network to securely send messages and specific instructions about your transfer, which can only be read by the sender and recipient. 

To communicate with one another on this network, all banks have a unique SWIFT of BIC code.

SWIFT is arguably the most secure method available for sending money overseas, with more than half of all international money transfers being made via the SWIFT network.

Importantly, SWIFT is only a messaging system, used to securely send transfer instructions. The physical money is still handled by the sending and receiving banks. 

Therefore, for your funds to move physically from your bank to their destination, the sending and receiving banks must have a relationship with each other.

This isn’t always the case, so when making an international transfer via the SWIFT network, your money will often pass through one or several correspondent or intermediary banks before reaching its final destination.

Understanding these terms will help you better understand how SWIFT transfers work.

Correspondent bank

If you’re making an international payment to a country where your bank doesn’t have a dedicated banking arm, it will engage a correspondent bank to handle this payment on its behalf. 

Correspondent banks work in a different currency to the issuing bank. 

Many banks form relationships with various correspondent banks around the world, allowing them to provide a wider range of currencies for their customers. 

When engaging in a correspondent bank relationship, both parties open a bank account with each other, allowing your transfer to move between the two accounts so your funds can be safely transferred.

Intermediary bank

Intermediary banks come in two forms and are utilised at two different stages of the transfer process.

In both scenarios, intermediary banks work in the same currency.

The more common instance where an intermediary bank is required, is where a relationship does not exist between the issuing bank’s correspondent bank and the receiving bank’s correspondent bank.

To facilitate the transfer, an intermediary bank that holds a relationship with these two parties needs to be engaged, so that the funds can pass through a trail of connected banks.

The second instance is if the bank you’re using to send money abroad is not registered to the SWIFT network. Therefore, they’ll need to engage an intermediary bank to initiate the transfer.

The intermediary bank will then use its own correspondent banks as required to complete the transfer.

The time it takes for a SWIFT transfer to complete can vary depending on the banks involved and the destination of your transfer. 

Here’s what the big banks have to say:

• CommBank states that “it generally takes 3 business days for the payment to reach the recipient but may take longer depending on the recipient’s country and bank”
• Westpac mentions that “funds are transferred electronically from your Westpac account into the designated overseas account usually within 1-3 business days”
• ANZ says that “funds (are) received usually within two business days or earlier”

They’re also quick to point out that transfers can take longer, anywhere between 1 to 5 business days.

The transfer time depends on several factors, such as the number of intermediary banks involved, time zones between the sending and receiving countries, and weekends or public holidays. Banks need to be open to verify and forward your transfer along the chain.

On some occasions, you can avoid the SWIFT network entirely by using money transfer companies with a global network of local bank accounts (more on this later).

Let’s explore the route an actual SWIFT transfer from Australia to the UK would take between two major banks: NAB and Nationwide.

• Issued by the sending bank: NAB
• Sent to NAB’s GBP correspondent bank: Royal Bank of Scotland (RBS)
• Sent to Nationwide’s GBP intermediary bank: HSBC UK
• Finally, sent to: Nationwide UK

As verified by their respective websites, NAB uses RBS as its GBP correspondent, and Nationwide, despite its size, relies on HSBC UK to process international GBP transfers as an intermediary.

In this example, a common AUD to GBP transfer involves four banks working together through the SWIFT network!

Sometimes, up to 5 banks are required to process international transfers, particularly when you’re trading exotic currencies.

The more banks that are involved, the higher the correspondent fees are likely to be, and the longer the transfer will take.

Whether or not you’re charged a correspondent bank fee depends on the bank you use, your transfer destination and whether a currency exchange is involved.

If we look at Australia’s largest banks:

• CommBank covers the correspondent bank fees, providing there’s a currency exchange involved
• Westpac covers the correspondent bank fees, providing money is sent to one of 10 currencies
• ANZ covers your correspondent bank fees, providing money is sent to one of 15 currencies
• NAB will cover the correspondent bank fees “in most cases”
• Bendigo Bank will not cover your correspondent bank fees in any instance

When you are charged correspondent bank fees, the amount typically ranges from $10 to $40, as evidenced by examples from CommBank, ANZ, and Bendigo Bank.

If a currency exchange is involved, CommBank offers the most comprehensive solution to avoid correspondent bank fees.

However, be aware this comes at the expense of far higher costs elsewhere.

For instance, while CommBank covers these fees, it also charges the largest foreign exchange (FX) margins among the big four Australian banks, which can lead to a significant hidden cost.

For example, at the time of writing, CommBank’s live exchange rate on its currency converter for a $10,000 AUD to GBP transfer is 0.49, which is 4.1% off the actual interbank rate.

That’s a hidden cost of $410, far outweighing the $10–$40 correspondent fees they might incur.

It’s easy to see why they’re willing to cover these fees when a currency exchange is involved!

They aren’t so kind when you make a transfer in the same currency.

With ANZ and Westpac, you’ll still have to pay correspondent bank fees on a number of popular payment routes from Australia, including when you transfer money from Australia to Japan, transfer money from Australia to Thailand and transfer money from Australia to Canada.

NAB’s vague policy of covering fees “in most cases” doesn’t provide much clarity, especially when planning a specific transfer amount.

Bendigo Bank ranks the worst for correspondent bank fees, charging significant margins on foreign exchange as well. Their use of the outdated term ‘telegraphic transfers’ adds to the perception of their outdated practices for international transfers.

Below are some example correspondent bank fees, provided by ANZ and Bendigo:

As the table demonstrates, correspondent fees vary by bank and depend on the correspondent banks which are involved in the transfer.

Generally, you’ll have three available options regarding who will pay any applicable correspondent bank fees: 

However, not all Australian banks provide this option, and you may need to increase the amount you send to ensure the recipient receives the expected amount.

It’s not an ideal solution and could result in a slight overpayment or underpayment.

Regardless of correspondent bank charges, any recipient bank fees will still be owed by the beneficiary and likely deducted from their receiving total, as you’re rarely able to cover these fees as a sender. 

Recipient fees vary by country. Some banks charge a flat receiving fee, while others charge a variable fee depending on where the funds are being transferred from.

Below are some guideline figures of average receiving fees for transfers exceeding 100 pounds or dollars in their respective currencies:

If you’re sending money abroad with your bank via the SWIFT network, in addition to intermediary and recipient fees, you’ll also likely have to pay a transfer fee to send your funds, and be subject to a poor exchange rate.

So, is there a way to avoid paying these fees?

Thankfully, yes!

By choosing a specialist provider, you stand to save significantly on international money transfers. This includes avoiding correspondent, intermediary, and recipient bank fees, as well as securing a far more competitive FX rate.

But how much do these savings translate to in dollars and cents?

It’s difficult to provide exact figures, as correspondent and receiving fees are often non-disclosed and can only be estimated. 

Nevertheless, we’ve provided some guideline figures from various providers below, based on a sample AU$10,000 money transfer from Australia to Singapore:

As we highlighted earlier, whilst Wise technically has the highest fees, because they don’t add an FX markup, they’re actually the most cost effective option in this example. 

With OFX, you still get a competitive exchange rate and zero fees, along with additional services and support from a dedicated account manager. 

You’ll also get better rates the more you trade, making them a better option than Wise on larger transfers.

Using an Australian bank like Westpac may subject you to unnecessary fees and a poor exchange rate.

In this example, choosing an alternative provider could save you more than AU$350!