How Currency Conversion Works
Currency conversion calculates the equivalent value of one currency in another using the current exchange rate. Rates are provided by the European Central Bank (ECB) via Frankfurter.app and updated daily on business days.
Market Rate vs Effective Rate
The market rate (interbank rate) is the "true" rate banks use between themselves. The effective rate is what you actually get after the bank or exchange company applies their markup or fee. Typical retail margins range from 0.5% to 3%.
Fee Calculation Methods
- Reduced rate: The bank applies the fee to the rate itself. e.g., market rate 1.08 with 2% fee → effective rate 1.0584. This is how most banks operate.
- Added on: Convert at market rate, then subtract the fee from the result. Mathematically equivalent to the reduced-rate method at the same percentage.
Tips for Better Exchange Rates
Compare rates from multiple providers. Online transfer services (Wise, Revolut) often offer rates closer to the market rate than traditional banks. Airport kiosks typically have the worst rates.