Currency conversion and the cost of living abroad
6 min read · Updated 2026-10-12 · MoneyCalc
Exchange rates are quoted in both directions and neither of them is normally the rate you receive. Banks, card networks and money transfer services each take a margin, and the difference between the headline rate and the rate that lands in your account is often the largest cost of converting money.
The rate you get is not the rate you see
A currency pair is normally quoted as one unit of a currency against another. The mid-market rate is the reference used for headlines, and no retail service offers it, because the margin is how they are paid.
The reverse rate is not the reciprocal of the forward one. If one euro buys 1.08 dollars, one dollar does not buy 1/1.08 euros exactly — the spread sits between the two numbers.
Fees, and where they actually appear
Some services charge an explicit transfer fee, others embed the margin in the rate, and card schemes charge a foreign transaction percentage on top of the network rate. The total cost can be several per cent depending on which route is used.
For larger amounts the fixed fee matters less and the rate margin matters more. For smaller amounts the fixed fee dominates, and a percentage-only comparison is misleading. Calculate the total cost on the actual amount rather than a percentage.
Comparing earnings across currencies
A salary quoted in one currency cannot be compared to one in another without the rate and the cost of living together. What matters is what the amount buys locally.
Work out the take-home figure after tax and contributions, convert it at a realistic rate, and compare it with local housing and transport costs. That comparison is far more reliable than converting either side back to a home currency.
When to convert and when to hold
For a payment due in a foreign currency, converting in advance avoids the risk of a rate move, and most providers offer a forward rate for exactly that purpose. Whether to take it depends on how much the certainty is worth against the potential saving.
For savings held in a foreign currency, the decision is different: there the question is concentration risk rather than the rate on a single payment, and holding too much in one currency exposes you to the same thing that made the currency attractive in the first place.
Run your own numbers
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Common questions
Why do I get a different rate than the one I see?
The headline rate is the mid-market reference. Providers add a margin, so your rate is worse. The reverse rate is also not the exact reciprocal of the forward one.
How much does a currency conversion fee cost?
It varies by provider and amount — typically a fixed fee, a rate margin, or both. Calculate the total cost on your actual amount, since a percentage comparison is misleading for small sums.
Should I convert money before I need to spend it?
For a known future payment it removes the risk of a rate move. For savings held in a foreign currency, the bigger question is concentration risk rather than the rate.
MoneyCalc provides general information only and is not financial, investment, tax or legal advice. Figures are illustrative and depend on your own circumstances. See our full disclaimer.