Written by
Tom Pearce
Head of Charitytransfers.org
[DRAFT] Not approved for publication. All figures on this page are illustrative and need compliance sign-off.
Two rates sit inside every quote
A quote from your bank has one number on the screen and two numbers behind it.
The first is the mid-market rate: the midpoint between the buying and selling prices in the wholesale market at that moment. It moves all day and it is published by independent sources. [CONFIRM: whether New Change FX may be named as the reference source]
The second is the rate you are offered. It is the mid-market rate adjusted in the bank's favour. The size of that adjustment is the margin, and it is the price of the conversion.
Two other details on the confirmation
The value date is the day the money settles. A rate quoted for a date further out is not the same as a rate quoted for tomorrow, and the difference is not a margin.
The cut-off time is the point after which a payment moves to the next working day. It is earlier for some currencies than for others, and earlier again before a public holiday in the destination country.
Neither changes what the conversion costs. Both change when the partner is paid, which is often the question the programme team is actually asking.
An illustrative example: £50,000 to Kenya
A charity sends £50,000 to a partner in Kenya. At the moment of the trade the mid-market GBP/KES rate is 160.00. The bank quotes 156.00.
Illustrative. The rates below are round numbers chosen to show the arithmetic. They are not a quote, not a live rate, and not a prediction. [CONFIRM: illustrative rate assumptions]
Line | Amount |
|---|---|
Amount sent | £50,000 |
Mid-market rate at that moment | 160.00 KES per £1 |
Shillings at the mid-market rate | KES 8,000,000 |
Rate quoted by the bank | 156.00 KES per £1 |
Shillings the partner would receive | KES 7,800,000 |
Difference | KES 200,000 |
Difference in pounds | £1,250 |
Margin | 2.5% |
The partner is 200,000 shillings short of what the market rate would have delivered. Converted back at the mid-market rate, that is £1,250 of the charity's money that did not arrive.
Turning the difference into a percentage
Percentages travel better than shillings. They let you compare a payment to Kenya with a payment to Uganda, and this month with last month.
margin % = (160.00 − 156.00) ÷ 160.00 × 100 = 2.5%
Apply the same percentage to your annual volume and you have the number your trustees will want to see. Illustrative: 2.5% on £1,000,000 of payments a year is £25,000.
Why a "no fee" transfer still costs money
Banks and payment firms often advertise transfers with no transfer fee. That statement can be true and the payment can still be expensive, because the charge is in the rate rather than in a line item.
A transfer with a £20 fee and a 0.3% margin costs less, on £50,000, than a transfer with no fee and a 2.5% margin. Illustrative: £170 against £1,250. The advertised fee is the smaller half of the question.
Two other costs sit outside the quote entirely:
Correspondent bank deductions taken in transit.
Receiving charges applied by the partner's own bank.
Ask about both before you compare providers, and ask who bears them.
Keep a simple log
You do not need a system. A spreadsheet with one row per payment will tell you more than most charities know today.
Record for each payment:
Date and time the rate was agreed.
Currency pair and amount sent.
The rate you were given.
The mid-market rate at that moment.
The margin, in percent and in pounds.
Any fee or deduction outside the rate.
Two habits make the log worth keeping. Capture the mid-market rate on the day, because reconstructing it later is slower and less exact. And review the log quarterly rather than annually, so a change in a provider's pricing shows up while you can still do something about it.
What the log is for
Three months of rows is enough to answer questions that are otherwise guesswork: which corridor costs you most, whether your margin widens on larger payments, and whether the pricing you agreed is the pricing you are getting.
It is also the evidence an auditor or a finance committee will ask for. A log of verified rates turns foreign exchange from an unexplained line in the accounts into something you can show and defend.
If you would like the review done for you, we measure a charity's last twelve months of payments against an independent benchmark and hand back the workings. [CONFIRM: review offer and whether it may be described as free]
