How a currency conversion is actually priced
The rate you look up online is the mid-market rate: the midpoint between the buying and selling prices at which large institutions trade with each other. It is a reference point, not an offer. Almost nobody converting a retail amount receives it, and any provider quoting a rate is quoting something a little worse — that difference is where most of the cost of a conversion sits.
The gap between the mid-market rate and the rate you are given is the spread. It is a charge, but it does not appear as a line item, which is why a transfer advertised as commission-free can still be considerably more expensive than one with a visible fee. Comparing providers means converting the spread into a percentage and adding any fixed fee on top.
Rates differ by channel for the same reason. A card network converts near mid-market and adds a foreign transaction margin, while a bank branch handling physical currency prices in handling and inventory risk and quotes a much wider spread. The one thing to refuse outright is dynamic currency conversion — a terminal abroad offering to bill you in your home currency at its own rate.
Worked example
Converting 1,000 units of one currency into another. The mid-market rate is 83.20 and the bank quotes 81.12 with no separate fee. The rates are illustrative — the arithmetic is what matters.
| Input | Value |
|---|
| Amount converted | 1,000 |
| Mid-market rate | 83.20 |
| Value at mid-market | 83,200 |
| Bank's offered rate | 81.12 |
| Amount actually received | 81,120 |
| Cost of the spread | 2,080 |
| Spread as a percentage | 2.50% |
The bank advertised no commission, yet the conversion cost 2,080 — all of it buried in the rate. A card settling the same amount at 82.37 would have cost 830, about 1.0% against 2.5%. On a single holiday that difference is minor. On a transfer of the same size every month it is 24,960 a year against 9,960, which is why the spread rather than the fee line is the number worth comparing.
How to use this calculator
- Look up the mid-market rate first and treat it as the benchmark, not as the price you will be offered.
- Enter the rate your provider is actually quoting, taken from the confirmation screen rather than from a rate board.
- Read the difference as a percentage, which makes providers comparable regardless of the amount involved.
- Add any fixed fee on top of the spread before deciding which provider is genuinely cheaper for your amount.
- When a card terminal or website abroad offers to charge you in your home currency, decline and pay in the local one.
Frequently asked questions
What is the mid-market rate?
The midpoint between the buy and sell prices at which banks trade currency with each other. It is the rate quoted by search engines and financial news, and it is a reference point rather than a retail offer. Every consumer provider prices at some distance from it.
Why is my bank's rate worse than the rate I looked up?
Because the looked-up rate is mid-market and the bank's rate includes its margin. The bank is also covering the risk of the rate moving before it settles, plus operational cost — much higher for physical cash than for an electronic transfer. That margin is the spread, and it is rarely itemised.
What is dynamic currency conversion and should I accept it?
It is a terminal or checkout abroad offering to charge you in your home currency instead of the local one, so the merchant's payment processor sets the exchange rate rather than your card network. The rate is almost always worse, sometimes considerably. Decline it and always pay in the local currency.
Are zero-fee transfer services actually free?
Not usually. If no fee is charged, the revenue comes from the spread instead. Some services genuinely pass through the mid-market rate and charge a transparent fee, which is often cheaper overall. Compare the final amount the recipient receives — that single number settles it.
What is a cross rate?
A rate between two currencies that are not quoted directly against each other, derived through a common third one. If a vehicle currency buys 83.20 of currency X and 0.92 of currency Y, the X-to-Y cross rate is 0.92 / 83.20 = 0.011058, so 10,000 X converts to about 110.58 Y. Each leg carries its own spread.
Does the amount I convert change the rate I get?
Often yes. Many providers tier their spread, narrowing it for larger amounts, so a single large transfer can beat several small ones even before fixed fees are counted. Small conversions are also where a flat fee does the most damage as a percentage of the total.
This calculator is an educational tool. Results are estimates based on the inputs you provide and do not constitute financial advice. Verify figures with your bank, broker or a qualified advisor before acting on them.