Currency conversion cost calculator

How do you calculate the cost of a currency conversion?

Compare what arrives with what the same money would buy at the mid-market rate, then add the fees. In the currency you send:

total cost = total you pay - amount received / mid-market rate

That single figure contains two parts: the rate markup, the gap between the mid-market rate and the rate you are offered, and the fees, fixed or percentage.

With the defaults, you send $1,000 and pay a $5 fee on top, so $1,005 leaves your account. At the offered rate of 1.2125, the $1,000 converted becomes 1,212.50 in the receiving currency. At the mid-market rate of 1.2500 with no fees, $1,005 would have bought 1,256.25. The shortfall of 43.75 is worth 43.75 / 1.25 = $35: $30 from the rate and $5 from the fee. That is 3.48% of what you paid.

The default rates are examples only. Type the mid-market rate and the provider's rate for your own pair; the calculator holds no live prices.

What is the mid-market rate, and how should I enter the rates?

The mid-market rate is the midpoint between the buy and sell prices for a currency pair. If one currency is bid at 1.2490 and offered at 1.2510 against another, the midpoint is (1.2490 + 1.2510) / 2 = 1.2500. A provider that converts at a different rate keeps the difference as part of its price.

This page uses one convention for both rates: 1 unit of the currency you send = how many units of the currency you receive. The labels change to name your two currencies, for example 1 USD = how many EUR?

Quotes are often written the other way round. A pair shown as EUR/USD 1.0800 means 1 euro = 1.08 dollars. If you are sending dollars, the rate to type is 1 / 1.08 = 0.9259. Type the offered rate the same way round as the mid-market rate, or the markup will look negative; the calculator warns you when the offered rate is better than mid-market or when the two are far apart.

How do you work out the exchange-rate markup?

The markup is the share of value lost on the rate alone: markup = (mid-market rate - offered rate) / mid-market rate x 100. With the defaults, (1.2500 - 1.2125) / 1.2500 = 3.00%. On $1,000 converted, that costs $30.

The same gap can be measured from the other end. Dividing by the offered rate instead, 1.2500 / 1.2125 - 1 = 3.09%: the mid-market rate is 3.09% better than the one offered. Both describe the same two numbers. This page uses the first, because it gives the money lost directly as a percentage of the amount converted.

A markup can sit inside a quote marked as fee-free, so the rate is the place to look first. Fees and markup together make up the all-in cost the calculator shows.

Markup or fee: which costs more?

It depends on the amount. A fixed fee is the same on any size of transfer, while a rate markup grows with the amount. For $1,000 at a mid-market rate of 1.2500:

At $100 the order changes: the $25 fixed fee is 20% of what you pay, while the 2% markup costs $2. At $10,000 the $25 fee is 0.25% and the 2% markup costs $200. The two cost the same at $1,250, where 2% of the amount equals $25. Run your own numbers through both quotes before choosing.

Why do small transfers cost more in percentage terms?

Because a fixed fee does not shrink with the amount. With the default rates and a $5 fee, the all-in cost is:

• 7.62% on $100, where the fee alone is $5 of the $105 paid;
• 3.96% on $500;
• 3.48% on $1,000;
• 3.05% on $10,000, close to the 3% markup alone.

As the amount grows, the all-in cost falls toward the markup percentage plus any percentage fee. The second chart under the calculator draws this curve for your own rates and fees, at a tenth of your amount up to ten times it.

Fees paid on top or taken from the amount

Providers present fees in two ways, and the calculator handles both:

• Paid on top. The whole amount is converted and the fee is charged in addition. With the defaults you pay $1,005 and 1,212.50 arrives.
• Taken from the amount. The fee comes out first and the rest is converted. You pay $1,000, $995 is converted and 1,206.44 arrives.

The total cost is almost the same: $35 on top against $34.85 taken from the amount, because in the second case the markup applies to $995 instead of $1,000. What changes is the amount that arrives: only with fees on top does the whole amount reach the exchange. If the fees are as large as the amount, the page says so rather than showing a negative transfer.

Worked examples in pounds and dirhams

• Pounds to euros, markup only. £2,000 at an offered rate of 1.1270 against a mid-market 1.1500, with no fee, delivers €2,254 instead of €2,300. The €46 shortfall is £40, a 2.00% markup.
• Dirhams to dollars, markup and fee. AED 10,000 at an offered 0.2650 against a mid-market 0.2723, with an AED 25 fee on top, delivers $2,650.00. The AED 10,025 paid would have bought $2,729.81 at mid-market, so the total cost is AED 293.09: a 2.68% markup on the rate plus the fee, or 2.92% of everything paid.

These rates are illustrations, not today's quotes. The send currency comes from the currency selector, which formats amounts in any of 24 currencies and converts nothing; the receive currency is a label you pick.

Card payments abroad and paying in your home currency

A card payment in a foreign currency is converted too, and the same arithmetic applies: the rate used, any foreign transaction fee as a percentage, and any fixed charge. Enter the amount in the currency your card is billed in, the mid-market rate, the rate that appears on your statement, and the fee.

A card terminal or cash machine abroad may offer to charge you in your home currency instead of the local one. That option uses a rate set at the point of payment. To compare the two choices, enter the rate shown on the screen as the offered rate, then run the calculator again with the rate and fee your card would apply to a payment in the local currency. The lower total cost is the cheaper route for that payment; neither is cheaper every time.

How to calculate conversion cost in Excel

Put the amount in A2, the mid-market rate in B2, the offered rate in C2, the fixed fee in D2 and the percentage fee as a decimal in E2.

• Total fees: =D2+A2*E2, which returns 5 for the defaults.
• Amount received, fees on top: =A2*C2, which returns 1,212.50.
• Total cost in the send currency: =A2+D2+A2*E2-A2*C2/B2, which returns 35.
• Markup: =(B2-C2)/B2, formatted as a percentage: 3.00%.
• Fees taken from the amount: received =(A2-D2-A2*E2)*C2 and cost =A2-(A2-D2-A2*E2)*C2/B2.

Common mistakes, what this leaves out, and a glossary

• Typing a rate upside down. Check both are 1 send currency in the receive currency.
• Comparing fees and ignoring the rate. A transfer with no fee can still carry a markup.
• Using a stale mid-market rate. Rates move during the day; compare with the mid-market rate at the time of the quote.
• Forgetting charges at the receiving end. An intermediary or the receiving account can deduct a fee that this page does not see.

Not modelled: fees charged by intermediaries or the recipient's provider, tax, rate changes between quote and delivery, and minimum or maximum fee caps. For trading currency pairs rather than transferring money, the pip value calculator and forex profit calculator cover the arithmetic of a position.

Mid-market rate: the midpoint between the buy and sell prices of a currency pair. Offered rate: the rate a provider applies to your conversion. Markup: how far the offered rate sits below mid-market, as a percentage. All-in cost: markup plus fees as a share of what you pay. Effective rate: what arrives divided by everything you paid.

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