What is a remittance?

United States By Christy Lowry Apr 13, 2022

Article Summary

Discover what a remittance is, how the term is used in relation to international money transfers and gain some initial insights in the different ways to move money.

If you want to transfer funds as a one-off or regular gift or payment, understanding what remittance means will help you pick options wisely to make your money go further and reduce hassle.

Read on for simple, at-a-glance guidance on remittances – plus discover more about the fees and charges involved.

In this article

Remittance definition: what it means
How to send an international remittance transfer
Who uses remittances transfers?
What’s the difference between a remittance and a bank transfer?
How much does it cost to send remittance?
FAQs and guides

Remittance definition: what it means

Remittance is a term that can be used to describe either a sum of money sent as a payment or gift or the act of sending the money.

The term may be shortened simply to: ‘remit’.

Sometimes, people use the term remittance to refer to a remittance advice note, which is a document recording a payment, such as a sales slip.

Whilst a remittance is literally any money sent between parties, it often specifically refers to money sent abroad – in payment for something or as a transfer to a family member, for instance.

If you are living away from your home country and are sending money back to loved ones, this will likely be referred to by the overarching term ‘remittance’ – regardless of the method you chose to send the money. Wiring the money , sending it by electronic transfer or instant transfer for collection in cash – are all types of remittance.

How to send an international remittance transfer

There are many ways to make an international money transfer.

The right one for you will depend on your circumstances. Take into consideration how quickly you want the money to be available to the person or business you are paying and the fees and charges you’re willing to pay.

Money transfer services

Money transfer services are specialists in moving money from one country to another.

They may offer numerous ways of moving money, each with different benefits attached.

Western Union is a money transfer service provider. We’ve been relied upon to send money globally for 150 years.

With us, you can opt to make payments directly to a bank account, mobile wallet or for cash pick up. You can do this via an online payment, using our app or in person at a Western Union agent location.

Banks or credit unions

Banks and credit unions may provide international remittance services.

Fees and exchange rates can vary so it’s a good idea to ask for specific details.

Some banks may not charge a transfer fee if you and the person you are paying both have accounts with them.

To use a bank or credit union transfer service it’s your receiver (the person you’re sending money to) will need to hold a bank account themselves. They don’t typically offer a cash pick-up option.

Not all banks and credit unions are able to process international remittances to all countries. It’s best to check how long the transfer will take too as it may be slower than other methods.

Checks and money orders

Checks and money orders are a more traditional method of sending money abroad.

They may be slow to arrive and clear however, and any mistakes when writing them out can be difficult or slow to rectify.

Who uses remittance transfers?

Remittance transfers are regularly made by businesses and individuals.

Migrants, looking after family and friends at home by sending cash, are major users of international remittance.

A 7.3% jump in remittances to low and middle-income nations has been estimated for 2021, hitting $589 billion. Source.

Remittances to North Africa and the Middle East’s developing nations alone are thought to have climbed by 9.7% to $62 billion. The increase was even higher, at 21.6%, in Latin America and the Caribbean.

It all means the total value of foreign direct investment and overseas development assistance is likely to have been eclipsed by remittances to low and middle-income nations during 2021 (excluding China).

What’s the difference between a remittance and a bank transfer?

A bank transfer is one method by which a remittance can be made.

Remittance is an overarching term that covers all the different methods of paying money.

Bank transfers allow remittances to be moved from one account to another. For international remittances, this may be convenient if the recipient has a bank account – especially one with the same bank. Fees and charges may not always be as competitive as using a specialist money transfer service provider.

In some cases, the term ‘remittance’ or ‘remittance transfer’ is used specifically to describe other types of transfers that are not bank transfers. These may be quicker and provide the option of cash collection which is not usual with bank transfers.

A specialist money transfer service provider can offer alternatives, including the ability to pay cash to an agent in the US for instant cash collection in your destination country.

How much does it cost to send remittance?

When sending international remittances, you’ll likely need to pay a money transfer fee.

Sending remittance – fees

You may be charged a fee to send a remittance. This could be a flat fee stated at the time of transaction, which is a set rate regardless of how much you transfer.

In addition to the fee, you’ll want to take note of the exchange rate on offer. This can vary between providers, even at the same moment on the same day.

An alternative might be a percentage fee that rises in proportion to the size of your international remittance. This could take into account and incorporate the exchange rate (sometimes called a spread fee) and may mean you’ll see only one deduction on your remittance. It may be more or less costly depending on the figures involved.

With Western Union you can see exactly how much you’ll pay to send money and what exchange rate you’ll get whichever payment method you choose thanks to our money transfer calculator.

Receiving remittance – fees

In the same way that you may be charged to send a remittance, the receiving institution may charge a receiving fee.

It is unusual for receiving fees to be charged if you transfer money using the same provider for sending and receiving the money.

FAQs and guides

What is a wire transfer?
How to send money internationally
How to send money from a credit card
Wire transfer fees: explained