Exchange rates look simple but banks and bureaux de change hide significant fees inside the spread. Here's how to calculate the true cost of any currency conversion and where to get the best rates.
Every currency conversion involves two things: the exchange rate and the fees. Banks typically advertise the rate and hide the fees inside it. Here's how to decode the true cost of any currency transaction.
The mid-market rate (also called the interbank rate) is the "real" exchange rate — the midpoint between what banks buy and sell currency for when trading between themselves. It's the rate you see on Google, XE.com, or any financial data source. You almost never get this rate as a retail customer — the spread is where the profit is made.
For large transfers (buying property abroad, receiving international income), forward contracts let you lock in a rate today for a future exchange. If you're buying a €250,000 property and the pound weakens by 5% before completion, that's £11,000+ in additional cost. Specialist FX brokers (Moneycorp, TorFX, OFX) offer forward contracts with little or no premium for amounts above £10,000.
When paying by card abroad, terminals often offer to charge you in your home currency (Dynamic Currency Conversion). This sounds helpful but locks in a rate with a margin of 3–7%. Always pay in the local currency — your card's exchange rate is almost always better than the merchant's DCC rate.