Freelancers compare business accounts on the monthly fee. Five pounds, ten pounds, free. It is the most visible number and very nearly the least important one, because for anyone invoicing in a currency they do not spend, the monthly fee is rounding error next to what the account takes on each conversion.
The reason that cost is hard to see is that it usually is not presented as a fee at all. It is built into the exchange rate you are offered, where there is nothing to add up and no line item to object to.
The number everything is measured against
There is a real exchange rate. It is called the mid-market rate, and it is the midpoint between what buyers are bidding and what sellers are asking for a currency at that moment. It is the rate you see on a search engine or a financial news site, and it is the rate banks use with each other.
It is not, generally, the rate you get. The gap between the mid-market rate and the rate you are offered is the margin, and it is revenue for whoever is converting your money. A provider advertising zero fees can still be taking three per cent, because the three per cent is in the rate rather than on the invoice.
Once you know that, the question stops being how much is the fee and becomes how far from mid-market is the rate.
Two ways to charge for a conversion
Providers split into two camps, and the distinction matters more than the headline percentages, which move around and vary by currency pair.
| Provider | How the conversion is priced | What to look at |
|---|---|---|
| Wise | Mid-market rate, with the fee charged openly as a separate percentage | The percentage varies by currency pair, so check your pair rather than the headline |
| Revolut Business | Interbank rate up to a monthly allowance set by your plan, with a markup above it | Allowance size, and an extra markup outside weekday market hours |
| Starling | Mid-market rate plus a margin, with currency accounts charged monthly | Monthly cost of holding each currency account |
| PayPal | A published spread above PayPal’s own base rate | 3.00 or 4.00 per cent depending on transaction type, plus a receiving fee |
| High street bank | Margin built into the rate, often with a transfer fee on top | The rate is rarely shown against mid-market, so you must check it yourself |
The first camp separates the fee from the rate, so you can see both. The second combines them, so you can see neither. Neither approach is automatically cheaper, but only one of them lets you check.
What PayPal publishes
PayPal is worth singling out, not because it is unusual, but because it documents its spread plainly and many freelancers use it by default for overseas clients.
Its published currency conversion spread is 4.00 per cent above the base exchange rate when you pay for goods or services in a currency other than the one they are listed in, when money sent to friends or family is received in another currency, or when a Payout is received in another currency. For other transactions the spread is 3.00 per cent. Receiving an international commercial payment adds a further 1.50 per cent on top of the domestic rate.
Those are the stated figures, and PayPal notes in both cases that another amount may be disclosed during the transaction. Read that as a ceiling you should verify rather than a fixed price.
What the difference is worth
Take a freelancer invoicing 4,000 of a foreign currency a month and converting all of it. The numbers below are illustrative, applying flat margins to a round figure rather than quoting any provider, but the shape is the point.
- At 0.5 per cent: 20 a month, 240 a year.
- At 1.5 per cent: 60 a month, 720 a year.
- At 3 per cent: 120 a month, 1,440 a year.
- At 4 per cent: 160 a month, 1,920 a year.
The spread between the cheapest and the most expensive line is over 1,600 a year, on the same work and the same invoices. A business account charging five a month is sixty a year. You could pay ten times the monthly fee and still be far ahead if the rate is better, which is exactly the comparison most freelancers never run.
The costs that are not the margin
Three more charges turn up on international payments, and none of them are the conversion margin.
Correspondent bank deductions. A traditional international transfer can pass through intermediary banks, each able to deduct a handling fee before passing it on. The sender is quoted one amount, the recipient receives less, and neither party is told where the difference went. If invoices keep arriving short by small amounts, this is usually why.
Receiving fees. Getting paid is not always free. Wire transfers in particular often carry a fixed receiving charge, which barely registers on a large invoice and hurts disproportionately on a small one. Where a provider offers both wire and local bank transfer rails, the local option is usually cheaper or free.
Timing surcharges. Currency markets close at the weekend. Providers that price against the live interbank rate during the week add a margin outside those hours to cover the risk of holding a position. Converting on a Saturday because an invoice landed on Friday night can cost measurably more than waiting until Monday.
How to check in thirty seconds
You do not need a spreadsheet to work out what you are paying. You need two numbers.
- Look up the mid-market rate for your currency pair.
- Start a transfer in your account and note the rate you are actually offered, plus any stated fee.
- Divide the difference between the two rates by the mid-market rate. That is your margin, as a percentage.
- Add any separate fee, then multiply by what you convert in a year.
Do it once a year, and after any pricing email you skimmed. Conversion pricing is revised more often than monthly fees, and it is revised in the direction you would expect.
Common questions
Does a zero fee account mean the conversion is free?
Almost never. It usually means the cost has moved from the fee line into the exchange rate. Compare the rate you are offered against mid-market and the charge reappears. A provider that shows a fee separately is being more transparent, not more expensive.
Should I invoice in my own currency to avoid all this?
It moves the conversion to the client rather than removing it, and the client’s bank will usually apply a worse rate than you could get. In practice it makes you more expensive to work with. Invoicing in the client’s currency and converting through a provider you have actually checked is normally the better outcome for both sides.
Is it worth holding a balance in the foreign currency?
If you have costs in that currency, yes, because every conversion you avoid is a margin you do not pay. If you have no costs in it, holding a balance is a currency bet rather than a saving. The account fee for holding the currency also has to be worth paying.
Why did my client’s payment arrive short?
Usually an intermediary bank deduction on a wire transfer, or a receiving fee on your side. Ask the client what they sent and compare it to what arrived. If the shortfall is a small round amount rather than a percentage, it is a flat deduction somewhere along the chain rather than a conversion margin.
Do these percentages apply to card spending too?
A card transaction in another currency is a conversion like any other, and the same margins apply. Watch for the terminal offering to charge you in your home currency, which sounds helpful and applies a markup chosen by the merchant’s payment processor. Always choose the local currency.
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