Bank exchange rate markup
What the mid-market rate is and how a markup works
If you're sending money in another currency, you might notice the final rate you receive is not quite what you see online. Most banks add an exchange rate markup, a margin on top of the global market rate that covers their own costs and adds to their profit. It's almost always blended into the rate, not listed separately, so you may not see it unless you check.
The mid-market rate sits between the highest price buyers pay and the lowest price sellers accept for a currency. Think of it as the midpoint you see on financial news sites, a reference rate rather than a price you'll actually get from a retail bank or payment processor (since they're earning their margin).
How to calculate the markup as a percentage
To work out exactly how much markup you're being charged, you'll want to compare the actual rate offered with the mid-market rate available at the same moment. Make sure both rates are expressed in the same way, say, dollars per euro. Then:
- Subtract your own rate from the current mid-market rate.
- Take that result and divide by the mid-market rate.
- Multiply by 100, and you have your markup as a percent.
For a concrete example, if the mid-market rate is 1.1000 US dollars per euro but your bank gives you 1.0890, the difference (0.0110) is about 1.0 percent of the mid-market rate. On a €10,000 payment, that's $110 lost to the hidden markup fee, charged as part of the rate instead of an explicit fee.
Why the markup can cost more than the transfer fee
You might notice the transfer fee, five or ten euros, right away. The markup, though, can quietly cost a lot more because it is applied to all the money you’re converting, not just a fixed amount. Even a marginally worse rate can add up, especially on business payments or payroll. Some providers who claim 'zero fees' may still take a larger markup than another who lists a visible charge.
So, to really see what you’re paying, check what your recipient would receive in the end currency. That’s the figure that actually matters, as it reflects both the upfront fees and the built-in margins. Since markets move all the time, only compare rates that you’ve quoted within a few minutes, and keep a record of when you checked. For more on putting several offers side by side, see how to choose a business FX provider.
Frequently asked questions
What is the mid-market rate?
The mid-market rate is the midpoint between the buy and sell prices of a currency pair in the wholesale market. Most financial websites publish it as the reference rate. Banks and payment providers usually offer customers a less favourable rate, and the difference is their margin.
Is a bank exchange rate markup always a bad deal?
No, a markup covers the cost of providing the conversion service and reflects the risk and overhead your provider takes on. What counts is whether the overall cost works for your business or personal payment. To decide, check what different providers deliver to your recipient and factor in how often you convert, or how high the amounts run. If you open a multi-currency business account and keep funds in several currencies, you may be able to reduce the number of times you need to convert, as covered in what a multi currency business account is.