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The effective rate is the fee as a percentage of the amount actually sent. It is the single figure that makes differently-shaped prices comparable.
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Key takeaways
Effective rate is fee divided by amount, expressed as a percentage. If a $500 payment costs $14.80, the effective rate is 2.96%, whatever combination of percentage, fixed fee, floor and cap produced it.
It collapses four numbers into one, which is exactly what you need to rank options, and it is the number to ask a provider for rather than their headline rate.
Because the effective rate depends on the amount, quoting one without the amount is meaningless. A rail can be 5.9% effective and 2.93% effective on the same day depending on whether the payment was $10 or $1,000.
Any comparison that gives a single effective rate per provider has either fixed an amount, which it should tell you, or has averaged over amounts, which hides the crossover that matters most.
Comparing markets adds a trap. A hundred units of a small currency is not the same payment as a hundred units of a large one, so an effective rate computed on a flat 100 will be nonsense wherever the local unit is small. Comparisons have to be priced on the same real value, converted, not the same nominal number.
The total fee divided by the amount paid, as a percentage. It turns differently shaped prices into one number that can be ranked.
Fixed fees, minimums and caps do not scale with the amount, so the share they take rises on small payments and falls on large ones.
Only when the fee is a pure percentage with no fixed part, minimum or cap. Otherwise the effective rate is higher on small payments and can be lower on large ones.
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Prices change. Everything here is explained against live fee data, so you can check any of it directly.
