Ever let PayPal convert for you when purchasing online in a different currency? Or trying to withdrawal foreign funds from your PayPal balance back into your local bank? You may have noticed that PayPal conversion fees are exorbitant and vastly differ from the rates you see on Google. A payment checkout page usually looks like this:
Given the option of choosing between PayPal automatic conversion option and your card’s conversion rate, the consumer is effectively dealt with a poor hand of cards.
Want to avoid this from happening?
Here’s how to avoid PayPal conversion fees when spending or withdrawing USD as a non-US citizen!
Update as of 31 October 2020: Sadly, this method may no longer be viable to certain changes in PayPal’s policy. Read the full story here.
PayPal Conversion Fees are Expensive!
According to TransferWise, Paypal’s currency conversion fee is between 2.5% and 4.5%.
Alternative sources have stated that this rate has been silently increased in PayPal’s user agreement, with no mentioning of an upper limit.
Increase or not, the fee is way too high to make it worthwhile to pay or receive USD on PayPal and many users have switched to other online payment systems.
How to avoid PayPal Conversion Fees when Purchasing Online
It is now time to find ways to make your online purchases more justified and affordable…
Not every merchant online provides the option of paying via MasterCard or Visa but only PayPal.
You may realise that most of the time, making payments via PayPal makes your online purchases much more expensive.
But what if we told you that you don’t have to pay hefty fees tied to using PayPal for overseas purchases if you link these cards to your PayPal account?
All you got to do is to make sure that you change your PayPal default payment method to the multi-currency card of your choice.
Ensure that you are paying in the overseas currency (you can usually change this option at the checkout page while making your purchases).
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Multi-currency cards such as YouTrip, Revolut, TransferWise and many more offer debit cards that provide real-time exchange rates that are almost the rates you see on Google.
And this makes your online purchases more worth it!
Note: This method applies to most currencies, as long as your travel card supports it.
How to avoid PayPal Conversion Fees when withdrawing from your PayPal Balance
When withdrawing USD from your PayPal Balance, it is not wise to use a card even if the card is a travel card or multicurrency card.
Although withdrawals will be instant, PayPal charges a 1% fee on card withdrawals.
PayPal does not allow you to choose your currency conversion option for card withdrawals and will automatically apply their unfavourable rate. That means even if you are using a Revolut card, it will not work as intended.
You are better off withdrawing directly to your local bank, where only currency conversion fees will be incurred (varies from country to country, e.g. $1 withdrawal fee still exists for withdrawals below $200 in Singapore).
There is currently only ONE known way to bypass this: Transferwise.
Important Note: Users are only able to link their local and US bank accounts on PayPal. E.g. if you have a Singaporean PayPal account, you can only link bank accounts from Singapore and the US. Hence, this method only works on USD.
Creating A TransferWise Account
In short, TransferWise is a versatile multicurrency digital bank account that offers unbeatable exchange rates as overseas fund transfers are always split into two separate local bank transfers.
Almost anyone in the world can create a TransferWise account.
That means anyone can own a US bank account in theory, which we can fully utilise later on when withdrawing from PayPal.
After signing up for TransferWise, head straight to opening a balance and select the foreign currency you wish to withdraw (in this case, USD).
After creating a balance, you will not be able to retrieve the bank details just yet if this is your first time.
Instead, you must first verify your identity and add 20 GBP (or equivalent in your local currency) for the first set of bank details you get. After that, you can freely get bank details for any balance that you have opened.
This will usually take around a few days.
Proceed to the next step once bank details are retrieved.
Link U.S. TransferWise Bank Account to PayPal
The next step is relatively easy if nothing goes wrong; that is.
All you have to do upon logging into your PayPal account is to select Link a bank account under the Digital Wallet tab.
Next, select Link a U.S. bank account.
Populate the form with your TransferWise bank details (checking account).
There are no further steps required if everything goes through smoothly. However, in some rare cases, PayPal will impose a secondary check which may look like this:
This step has become extremely problematic due to the COVID-19 situation. As all PayPal call centre services are temporarily suspended, you must complete the verification process via the Message Centre instead.
Explain the situation to the customer service agent and stay on the page once the agent is online. Your U.S. bank account will be successfully linked thereafter.
Withdraw Anytime You Want – Free!
Once the bank account has been linked, you may proceed to withdraw as per usual. Your funds will be available on your TransferWise account in 1-5 business days.
No fees will be charged for this step.
Next, send the USD stored in your balance to your desired bank account, and it will be converted into the selected currency at the mid-market rate.
Unlike other money transfers where hidden markups are added without your knowledge, Transferwise keeps its fee separated from the exchange rate.
How Much Will You Save on PayPal Conversion FeesThe true cost of sending EUR to GBP
Can I Avoid PayPal Transaction Fees too?
You may notice when you receive payment from others; a small fee will be deducted.
Well, the answer is no since you are using their service as a mode of payment.
There’s a reason why Elon Musk was able to make his 1st billion in 2002 with PayPal.
One way to reduce the PayPal transaction fee would be to opt to be paid less often, i.e. monthly payments instead of weekly payments. The transaction fee is usually a fixed fee + a percentage of the amount you receive, and this varies from countries to countries.
However, suppose you wish to avoid all PayPal fees when you’re receiving money altogether. In that case, you could always set up a TransferWise account and request your sender to send it via TransferWise instead. (The transaction fees and conversion fees are at a much more competitive rate).