Sending $1,000 abroad costs $34.85, and the receipt says $5

Send $1,000 abroad with a $5 fee and the receipt says the transfer cost $5. In the example below it cost seven times that. The rest is in the exchange rate, where it is not called a fee and is not shown as a cost.

The transfer, worked through

Use round numbers. Say the mid-market rate, the one a search engine shows, is 0.92 euros to the dollar. At that rate, $1,000 is €920. Now the same transfer as a provider might quote it:

• The fee comes off first. $5, leaving $995 to convert.
• The rate is a little worse. 3% below the mid-market rate is 0.8924, not 0.92.
• What arrives: $995 at 0.8924 is €887.94.

The recipient gets €887.94 where the mid-market rate would have given €920. That is €32.06 short, which is $34.85 in the money you sent: $5 of fee and $29.85 lost to the rate. The transfer cost 3.49%, and the stated fee was a seventh of it.

The 3% is an example. Margins vary a great deal between providers and between currencies, and this article explains where the margin comes from. The point is the shape of it: one cost is printed, and the other has to be worked out.

The fee matters on small transfers, the rate on large ones

A fee is a fixed amount. A margin is a percentage. So the same two charges weigh very differently as the amount changes:

• Sending $100: $5 of fee and $2.85 of margin. $7.85, which is 7.85% of the transfer. Most of the cost is the fee.
• Sending $1,000: $5 of fee and $29.85 of margin. $34.85, or 3.49%.
• Sending $10,000: $5 of fee and $299.85 of margin. $304.85, or 3.05%. The fee has all but vanished and the rate is the whole cost.

“No fee” is not the same as no cost

Compare two made-up offers on $1,000. One charges no fee and uses a rate 4% below mid-market. The other charges a $10 fee and uses a rate 1% below.

The no-fee offer costs $40. The one with the $10 fee costs $19.90, half as much.

It does not always go that way. On $200, the same two offers cost $8 and $11.90, and the no-fee one is cheaper. Which is the lower cost depends on the amount, and the only way to know is to add the fee and the margin together for the sum you are actually sending.

How to find the rate you were offered

It is on the quote screen, before you confirm. If the screen shows only what the recipient will get, divide that by the amount being converted, which is what you send less the fee. Then compare it with a mid-market rate from the same day, because rates move daily and a comparison across two days measures the market as well as the provider.

The international transfer cost calculator does the adding up. You enter the fee and the rate you were quoted, and it shows the total against a dated reference rate. It estimates cost from your own figures. It does not name a provider or say which to use.