It is difficult to provide definitive information on fees and margins as these will vary between the various foreign exchange providers, however the majority of FX providers will typically remain within the following thresholds.
- Transfers greater than £3,000 – Fee Free
- Transfers less than £3,000 – Fees typically range from £5 – £15 per transfer
- Certain providers may promote that they do not charge a fee which could be due to:
- The minimum transfer amount they accept is £3,000 – £5,000
- They incorporate fees in to their margins, thereby offering a worse exchange rate
Foreign exchange providers and banks make money on the margins they take from each transfer they process regardless of whether it is a Spot deal, Forward exchange contract, Limit order or Regular payment.
A margin is the difference between the exchange rate the FX provider can buy at and the exchange rate they offer to their clients. Each foreign exchange provider and high street bank has the flexibility to charge any margin they wish, which typically varies between 0.2% and 4% depending on the company and the size of the transaction.
High street banks typically charge a margin of between 2% – 4% and will usually charge a fee of between £20 – £40 for each transfer depending on the transaction size.
Foreign exchange providers typically charge a margin of between 0.2% and 1.2% depending on transaction size, and may or may not charge a fee (see the section on Fees for more information). Foreign exchange providers are generally more open to negotiating on exchange rates and fees to ensure they win the clients business. However beware a foreign exchange provider offering exchange rates close to the interbank price, as firstly you have to question why they are willing to process a transaction which will not make them any profit, and secondly if you have the potential to be a repeat customer the FX provider may start widening their margins in the future to ensure they make a profit overall.
Interbank rate – the rate at which international banks trade between each other. When looking at currency converters on any website, the exchange rate will typically be interbank or mid-market rates. It is important to understand that a consumer will not be able to trade at interbank rates so exchange rates on currency converters and similar websites should be for information purposes only.
Wholesale rate – the exchange rate foreign exchange providers can obtain from their banks or counterparties, the more the FX provider trades the better wholesale exchange rate they will receive or the tighter the margin they will be offered by their counterparty.
Customer rate – the exchange rate an FX provider will offer to their clients. The closer the exchange rate is to the interbank rate, the tighter the margin, the better the exchange rate, the more monetary value the client will receive.
Margin – the difference between the wholesale rate and the customer rate. The margin is the FX provider’s gross profit on the transaction.