Currency exchange fee: what is it and how to minimize it?
Billions in currency exchange fees are paid by migrants every year without noticing it. Learn here how to identify and avoid them.
What is a currency exchange fee?
Every time you exchange money from one currency to another, the bank or money transfer operator (such as Moneygram) may apply a currency exchange fee. Â The difference between the exchange rate they decide to apply and the real exchange rate traded in the market is the currency exchange fee.
It means they are offering you a less interesting rate that what they are obtaining on the market. They are therefore generating a profit.
This currency exchange fee is often a hidden fee for an untrained eye.
How to calculate a currency exchange fee?
Let's say you are sending British Pounds (GBP) to your polish bank account in Zlottys (PLN).
First, you have to find what is the exchange rate applied by the Money Transfer Operator of your choice. Here is an example with Sami Swoi:
The currency exchange fee on Sami Swoi website.
You notice that they show the exchange rate on their calculator online. They give you 5.2200 PLN for 1 GBP.
Second, you have to find the interbank exchange rate for GBP/PLN. This is the rate at which banks exchange different currencies with one another. You can find the live or daily rate on currency converter such as Oanda or XE.com. Today the 24th of november 2014, it is 5.30966 PLN/EUR Note: even is this seems small & negligible at first, every digit is important in the exchange rate
Third, we are now able to calculate the currency exchange fee applied by this Money Transfer Operator:
1 - ( Interbank exchange rate / Money transfer operator exchange rate) * 100 = Currency Exchange Fee (%)
1 - ( 5.30966 / 5.2200) * 100 = 1,7176%
Note that the subtract 1 and multiply by 100 to have a percentage.
We can see that the exchange fee applied by this Money Transfer Operator is 1.7176%.
If we apply this fee (%) on the amount we want to send to Poland from the United-Kingdom, we can see that we pay 200 * 1.7176 = 3.4352 GBP of currency exchange fee.
If we add now the flat transfer fee of 2.99 GBP, we see that the total transfer fee: 3.4352+2.99 = 6.4252 GBP or 3.12% of the amount transferred is more than the double of the declared cost of 2.99 GBP.
To sum up
Flat transfer fee: 2.99 GBP
Currency exchange fee: 3.4352 GBP
Total fee actually paid: 6.4252 GBP
How can I minimize the currency exchange fee I pay on my regular transfers?
Now that I know what is the currency exchange fee and how much it represents: How can I avoid paying such high conversion costs?
The first step is to be aware of those costs to know when they are applied and recognize them. The second step is to compare the exchange rate offered by money transfer operators and compare them.
But it can get really annoying to compare the different transfer fees and currency exchange fees for dozen of money transfer operators! That's why we have build a comparison tool that compare all the money transfer operators at once and give you a clear overview of the costs. The flat transfer fee and currency exchange fee are both included in the comparison.
Find the most competitive provider for your next transfer
This might interested you as well
- Each Venmo transfer needs the sender and beneficiary to be physically in the US, so you can’t use it to send money abroad to a friend or family. If you’re looking for the best & cheapest way to send money internationally, you can comp…
- Avoid inflated fees and find the cheapest way to send money, right here, right now.
- Have you ever sent money and wondered why it moves at a snail pace? Discover everything you need to know to avoid slow money transfers and move your money in fastest way possible.
- A Square Cash transaction is only available in the US, but if you’re looking for the best service for your money transfers, compare your solutions on Monito.
- Managing your finances across multiple countries and currencies is tricky, especially if you don't have a fixed abode, are traveling regularly or you're living abroad. But a variety of international, multi-currency accounts make banki…
- Zelle is great, but it's only available in the US. If you’re looking for the best & cheapest way to send money internationally, you can compare all solutions on Monito.