How to Convert Currency and Get a Fair Exchange Rate

What an exchange rate really is

An exchange rate is the price of one currency measured in another. If the rate between the US dollar and the euro is 0.92, then one dollar buys 0.92 euros. Flip it around and one euro buys about 1.087 dollars, because 1 divided by 0.92 is 1.087. Both numbers describe the same price from opposite sides, which is why a good converter shows the rate in both directions.

Currencies are traded all day on a huge global market, mostly between banks, companies and investors. Prices move with interest rates, inflation, trade, politics and plain supply and demand. If a country raises interest rates, investors often want its currency more and the price goes up. If its economy looks weak, the price tends to fall. That is why you will see the same pair at slightly different numbers in the morning and in the evening.

Most rates you see in daily life are quoted to four or six decimal places. That is not to look scientific. It is because the difference between 0.9205 and 0.9250 matters once you move large sums. On a payment of 10,000 dollars, that tiny-looking gap is 45 euros.

The mid-market rate and why it is your yardstick

On the currency market, every pair has two prices at any moment: the price at which a dealer will buy a currency from you (the bid) and the price at which they will sell it to you (the ask). The ask is higher than the bid, and the difference between them is called the spread. That is how dealers earn their living.

The mid-market rate is the point halfway between the bid and the ask. It is the fairest single number for a currency pair, because it favours neither the buyer nor the seller. When people say the real exchange rate, they almost always mean this one. It is the rate you see when you search for a conversion online.

The important thing is to treat the mid-market rate as a yardstick, not as a promise. You cannot normally buy or sell at it, because that would leave no profit for the provider. But once you know it, you can measure any offer against it. If the mid-market rate is 0.9200 and a provider offers you 0.8900, you know that roughly 3.3 percent is being kept as margin, because 0.89 divided by 0.92 is about 0.967.

Where our converter gets its rates

We want you to know exactly what you are looking at, so here is the source. Our currency converter uses Frankfurter, a free, open service that republishes the daily reference rates of the European Central Bank, or ECB. The ECB collects these rates once each working day, at around 16:00 Central European Time, and they have been published this way for many years.

Because the ECB sets one rate per working day, the number you see is a daily reference rate. It does not tick up and down every second like a trading screen. For most real-life questions this is plenty. If you want to know roughly what a 2,500-euro invoice is in dollars, or whether a holiday in Japan fits your budget, a daily rate is accurate enough to decide.

There are two limits you should know about. First, the rate is from the last working day, so on a Saturday or a public holiday you will see Friday's or the previous day's figure. The converter shows the date of the rate under the result, so you always know. Second, the ECB covers a set list of 31 major currencies. Some popular ones, such as the UAE dirham, the Saudi riyal or the Pakistani rupee, are not on the list, and we do not guess a rate for them. Honest gaps are better than made-up numbers.

Everything happens in your browser. When you open the page, it downloads the public rate table for the currency you picked. The amount you type is never sent anywhere, and we do not keep it. If you want a similar guide to checking whether a free tool is respectful of your data, read our article on whether free online tools are safe.

How to use the currency converter in four steps

The tool is deliberately simple. Here is the whole process with our free currency converter.

1. Type the amount you want to convert in the first box. You can use decimals, such as 249.99.
2. Choose the currency you have in the From box and the one you want in the To box. The list shows currency names in your language.
3. Read the converted amount. Underneath you will see the rate in both directions and the date the rate was published.
4. To check the opposite direction, simply swap the two currencies. The reverse rate is shown for you as well.

Treat the result as your reference point. When your bank, card or transfer service shows you its own figure, compare the two. The difference, divided by the reference amount, is the real cost of using that provider.

How banks and transfer services hide their fees

Providers make money from currency in two ways: a visible fee and an invisible margin. The visible fee is easy. It is a flat charge or a percentage that is shown clearly. The margin is harder to spot, because it is built into the exchange rate itself.

Here is a worked example. Say you want to send 1,000 US dollars to a friend who will receive euros. The mid-market rate is 0.9200, so the fair answer is 920 euros. Provider A advertises zero fees but uses a rate of 0.8900. You would send 1,000 dollars and the friend would receive 890 euros. You have lost 30 euros, which is about 3.3 percent, and it never appeared as a fee.

Provider B charges a clear 8-dollar fee and uses a rate of 0.9180. You send 1,000 dollars, 8 go to the fee, and 992 dollars are converted at 0.9180. That is 910.66 euros. You have lost about 9.34 euros, or just over 1 percent. The provider with a visible fee turns out to be much cheaper than the one that says zero fees.

The lesson is simple. Never judge an offer by the headline fee alone. Always compare the final amount that arrives, in the currency that arrives. That one number includes both the fee and the margin.

A simple method to compare any offer

You do not need a spreadsheet. Use this method whenever you are about to convert money, and it takes about a minute.

Step one: use the converter to find the reference amount, which is how much you would receive at the mid-market rate with no cost at all. Step two: ask the provider for the exact amount the recipient will get, after every fee, in the recipient's currency. Step three: divide the difference by the reference amount. The result is your real cost as a percentage.

• Reference amount: 5,000 USD at 0.9200 gives 4,600 EUR.
• Offer from the provider: 4,490 EUR arrives after all fees.
• Difference: 4,600 minus 4,490 is 110 EUR.
• Real cost: 110 divided by 4,600 is about 2.4 percent.

If you do this with two or three providers, you will quickly see which one is cheapest for your amount and your route. The ranking can change depending on the size of the transfer and the speed you need, so do the check each time you send a large sum. For regular small payments, once is usually enough. You can also work out percentage differences with our percentage calculator.

Travel: cash, cards and airport desks

Travel is where most people overpay, because the choices come at you in a hurry. Here is how the common options compare in practice.

Airport exchange desks are usually the most expensive way to get cash. They know you are in a hurry, so their rates often keep several percent as margin, and some add a commission on top. If you need local cash on arrival, take a small amount only and get the rest elsewhere.

Withdrawing from an ATM abroad is often better value, but watch for three things. Your own bank may charge a foreign-withdrawal fee. The local ATM operator may charge a fee. And the ATM may offer to charge you in your home currency instead of the local one. That last offer is called dynamic currency conversion, and it almost always uses a poor rate. Choose to be charged in the local currency.

Card payments follow the same rule. If a card terminal or a website asks whether you would like to pay in your own currency or in the local currency, choose the local currency. Your card network will convert the amount at a rate that is normally close to the reference rate, while the shop's offer to do the conversion for you is where the extra margin lives. Some cards also add a foreign transaction fee of around 1 to 3 percent, so check yours before you travel.

• Before you go, use the converter to learn the rough value of local prices. A coffee at 4.50 in your destination currency means something only once you know it is about 4.90 in yours.
• Set a simple conversion in your head. If 1 of your currency is about 11 units of theirs, divide local prices by 11 to know what you pay.
• Carry a card with no foreign transaction fee if you can, and always pay in the local currency.
• Keep a little cash for places that do not take cards, and avoid exchanging at the airport unless you have to.

Invoicing clients in another currency

If you freelance or run a small business, you will meet foreign currency sooner or later. The key decision is which currency to invoice in, and the answer depends on who carries the risk of exchange-rate changes.

If you invoice in your own currency, the client carries the risk. If you invoice in theirs, you carry it, because by the time they pay, the rate may have moved. A 30-day payment term is long enough for a currency to move one or two percent, which can be a large part of a small profit margin.

A practical approach is to state the currency clearly on the invoice, show the exchange rate you used if you converted prices, and write the date the rate was taken. Our invoice generator lets you set the currency, and our guide to making an invoice covers the other details a good invoice should have. For quotes, our quotation maker works the same way.

Also remember the tax side. When you receive foreign currency, the amount you must report is normally the value in your home currency on the date you earned or received it. Rules differ from one country to another, and some authorities publish their own official rates for this purpose. Keep a record of the rate and date you used, and ask an accountant to confirm what applies to you.

Sending money abroad without losing too much

Sending money to family or paying someone overseas is the case where a small percentage matters most, because the amounts are often regular. Sending 300 dollars home every month at a 3 percent cost loses you 108 dollars a year. Reducing the cost to 1 percent keeps 72 of those dollars in your family's hands.

Compare at least three routes: your own bank, a specialist transfer service and, if available, a local method such as a bank-to-bank scheme in the receiving country. Remember that the cheapest option on paper is not always the best. Speed, how the money is delivered, and whether the recipient can easily collect it all matter too.

A few habits help every time. Send a bigger amount less often when the provider charges a flat fee, because the fee is then a smaller share. Avoid sending on weekends if the provider adds a weekend margin. Check the rate and the final amount again just before you confirm, since the quote may have changed since you first looked. And always double-check the recipient's details, because a returned or misdirected transfer can cost more than any exchange margin.

Shopping online in a foreign currency

Online shops make currency easy to ignore, which is exactly why it is worth a second look. Many sites show prices in your currency using their own conversion, and the rate they use may include a margin. Others bill in the shop's currency and leave the conversion to your card.

A simple check helps. If a product costs 79 euros and your card is in dollars, convert 79 euros at the reference rate. At 1.087 dollars per euro that is about 85.87 dollars. If the shop shows you a price of 91 dollars, you are being charged about 6 percent over the reference. Switching the shop to its own currency, if the site lets you, and letting your card convert may save money, particularly if your card has no foreign transaction fee.

Remember that duties, import taxes and shipping can add to the cost when you buy from another country. The converter shows you the price of the item, not the total landed cost. Use our sales tax calculator to add local tax to a price once you know it.

Why exchange rates move, and what you can do about it

Exchange rates move because the demand for currencies changes. The biggest drivers are interest rates, inflation, economic growth, trade balances and political events. When a country's central bank raises rates, saving in that currency becomes more attractive, and demand tends to rise. When prices rise quickly in a country, its currency usually loses value against more stable ones over time, which is one reason people track inflation when they plan long-term money.

You cannot predict these moves reliably, and neither can most professionals. So the practical goal is not to guess the best day. It is to reduce the damage from a bad day. If you have to make a large payment, you can split it into two or three parts over several weeks, so that you do not exchange everything at a single unlucky rate. If you are saving for a trip, you can exchange a portion every month rather than all at once.

Businesses sometimes agree a fixed rate in advance with their bank, called a forward contract, to remove the uncertainty. That is a financial product with its own costs and risks, and it is beyond what a simple converter can help with. If your payments are large and regular, talk to a qualified adviser about options.

Saving and investing across currencies

Currency also matters when you save. If your savings are in one currency and your future costs are in another, changes in the exchange rate can help or hurt you as much as interest does. For example, a family in India saving for a child's education abroad may earn an interest rate in rupees, but the fees will be charged in dollars or pounds. If the rupee weakens against the dollar over the years, the rupee savings buy fewer dollars.

That does not mean you should rush to move your money. Converting costs something each time, and the direction of the market is unknown. It does mean you should include currency risk in your thinking. Use a tool such as our compound interest calculator to see how your savings grow in their own currency, then use the converter to see roughly what that is worth in the currency you will spend.

If you are looking at fixed deposits in India, our FD calculator shows the maturity amount in rupees, and the converter can show that sum in your home currency as of today. The exchange rate at the time you actually withdraw will be different, so treat any conversion of a future amount as a rough guide.

Common mistakes to avoid

The same few errors come up again and again when people handle foreign money. Most are easy to avoid once you have seen them.

• Judging an offer by the fee only. The margin in the rate is often larger than any fee.
• Accepting the card terminal's offer to pay in your own currency. Choose the local currency.
• Exchanging a large amount at an airport kiosk because it is convenient.
• Using an old rate. Rates move daily, so check again on the day you pay.
• Forgetting to compare the final amount, not the advertised rate. The amount received is the only number that counts.
• Mixing up the direction of the rate. If 1 dollar is 0.92 euros, then 1 euro is about 1.087 dollars, not 0.92. Mistakes here can swing a price by ten percent.
• Ignoring tax. Foreign income and gifts may have to be reported, and the rate used for tax can be an official one rather than a market rate.

If you avoid even three of these, you will keep a noticeable amount of money over a year, especially if you pay or send regularly.

What a free converter can and cannot do

A free converter is a very good yardstick. It tells you the reference value of an amount so you can sense-check a price, plan a budget and test any offer. We use it ourselves whenever we compare quotes.

What it cannot do is promise you a rate. Nobody is obliged to deal with you at the reference rate, and the live market can move between the time the ECB publishes its figure and the time you send a payment. For large or time-sensitive transfers, always ask your provider for a firm quote, and compare it with the reference amount as described above.

It is also not financial, tax or legal advice. Exchange rates, fees and rules differ by country and change over time. If a decision involves a lot of money, a mortgage, a business contract or a tax question, speak to a qualified professional who knows your situation.

A quick checklist before you convert money

Print this, save it or just remember it. It takes a minute and it can save you real money.

1. Find the reference amount with the converter, so you know the fair value.
2. Ask each provider for the exact amount that will arrive, after all fees and in the right currency.
3. Divide the difference by the reference amount to see the real cost as a percentage.
4. If you are paying by card abroad, choose the local currency and decline the conversion offer.
5. Check the date of the rate and look again right before a large payment.
6. For big or regular amounts, consider splitting payments and comparing providers every few months.
7. Keep a note of the rate and date you used for invoices and tax records.

Do these seven things and you will beat most people, who simply accept the first number they see. Currency does not need to be mysterious, and it does not need to be expensive.

Questions people ask

Sources and further reading

• European Central Bank – Euro foreign exchange reference rates
• Frankfurter – Free currency exchange rates API
• Consumer Financial Protection Bureau – Sending money abroad