Correspondent Bank

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A correspondent bank is a type of third-party bank authorized to act as a middleman in the process of transferring money from one bank to another over the SWIFT network.

Contracted by other banks from other countries, correspondent banks are used as agents in the process of currency exchange, where they play an important role in facilitating wire transfers internationally over the SWIFT network.

For example, if you were to send money overseas to a bank account in a small or obscure bank or country abroad, a correspondent bank might be used by your bank to carry the transaction through as, in all likelihood, your bank will not have the networks, resources, or operational expertise to conduct financial transactions directly with your beneficiary's bank.

While arguably best known for their role in wire transfers, correspondent banks also work with banks to accept deposits, manage investments, and other financial services. They charge fees for their service to their bank clients, which, in turn, sometimes pass along part of those costs onto consumers in the form of a correspondent bank fee, sometimes called an "agent fee".

Correspondent Bank vs Intermediary Bank

Correspondent banks share many similarities with intermediary banks, and the two can easily be confused. After all, both banks are third-party banks that work with other banks to facilitate money transfers in exchange for a fee.

However, the crucial difference to note between correspondent banks and intermediary banks is that correspondent banks deal with transactions in multiple currencies, whereas intermediary banks handle transactions in only one currency. As such, intermediary banks are more often used when a smaller bank needs to enlist the help of a third-party bank to handle special types of transactions.

Correspondent Banks: What To Avoid, And How

Correspondent banks are enlisted rather frequently in the world of international banking and currency exchange. Given that banks push correspondent bank fees onto the consumer sending money abroad, whenever you use your bank to send money overseas, you're opening yourself up to these fees being charged on your transfer.

This is especially bad news given the fact that these fees can be exorbitant and untransparent. They tend to range between US$10 and US$100 per transfer and are subtracted (sometimes a long time) after the money has already been sent without any notice being given.

💡 We recommend that you avoid choosing "OUR" payments whenever you're asked to choose between "SHA", "BEN", and "OUR" by your bank. These instructions open the door to third-party banks levying further fees from you long after the transfer has been sent.

As a result, we generally recommend avoiding wire transfers altogether if you value saving money on transfers abroad. In most cases, using a money transfer specialist service in lieu of your bank will mean you'll not run into any correspondent bank fees, as these services use a savvy network of global bank accounts and peer-to-peer transfer technology to dodge the SWIFT network altogether.

What's more, transfer fees with specialist services are usually considerably cheaper than with banks in the first place! (Take a look at our full in-depth guide to learn more about why this is the case.) Simply run a search on Monito's real-time comparison engine below to find that service that's cheapest for your transfer:

Image credit: Ferran Fusalba Roselló on Unsplash

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The Monito Glossary

When it comes to moving money, don't let yourself be bogged down by all the jargon. Explore The Monito Glossary to get up to speed with everything you need to know about money transfers.

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