Currency conversion: the real rate, the bank's rate and the hidden fees

Search for an exchange rate and you get one number. Change money at a bank, an airport kiosk or through your card, and you get a different, worse one. The gap is how most currency providers earn money — and it is often bigger than the fee they advertise.

The mid-market rate

Banks trade currencies with each other at a buying price and a selling price. The midpoint between them is the mid-market rate — the fairest single figure, and the one news reports quote. The Currency Converter uses the European Central Bank's daily reference rates, published each working day at about 16:00 Central European Time, and shows the date of the rate it used. There are no updates at weekends or on European public holidays.

Only the currency codes are used to look up the rate. The amount you type stays in your browser.

Why you get less

Retail providers add a margin to the mid-market rate, often between 0.5% and 4%, and may also charge a separate fee. Suppose the mid-market rate is 1.10 and you change 1,000:

• at the mid-market rate you would receive 1,100;
• with a 3% margin you receive about 1,067 — a cost of 33, even with “no fee”.

“Zero commission” does not mean free; it usually means the cost is built into the rate.

Comparing providers properly

Ask each provider how much of the other currency you will actually receive for a fixed amount, after all fees. Then compare that with the mid-market figure. The difference, as a percentage of the mid-market amount, is your true cost — the Percentage Calculator works it out. For larger transfers, a fraction of a percentage point is real money.

Paying by card abroad

Card terminals and cash machines abroad often offer to charge you in your home currency. This is called dynamic currency conversion, and it is almost always worse than choosing the local currency, because the terminal's provider sets its own rate. When asked, choose to pay in the local currency and let your card issuer convert it.

Check your card's foreign transaction fee too. Some cards charge around 3% on every purchase abroad; others charge nothing.

Cash

Exchange desks at airports and stations are usually among the most expensive options. If you need cash, withdrawing a moderate amount from a bank cash machine on arrival, in the local currency, is usually cheaper — but check your bank's withdrawal fees.

What the reference rate is not

• It is not a quote. No one will necessarily exchange money for you at that rate.
• It is not for accounting or tax. Those need the official rate your authority specifies for a given date.
• It is not live. Rates move constantly during trading hours; this is a daily reference figure.

The converter covers around thirty widely traded currencies. Pegged and thinly traded currencies are not in the reference feed.