Most of the money lost on a currency conversion never shows up as a fee. It sits in the exchange rate, as the gap between the rate you are offered and the mid-market rate. A single formula turns that gap into a percentage you can compare across banks, transfer services, card terminals and cash counters. Below: how to apply it in either direction, how it combines with flat fees, what 1%, 3% and 5% markups cost on live dollar rates, and the card and ATM traps that add more.
What is an exchange rate markup?
An exchange rate markup is the percentage gap between the rate a provider quotes you and the mid-market rate at the same moment.
The mid-market rate is the midpoint of wholesale bid and ask prices; our guide to the mid-market exchange rate explains where it comes from and why nobody sells at it. Providers rarely use the word markup. The World Bank calls the gap an exchange-rate margin, card agreements talk about conversion, and many transfer services quote a rate and say nothing more. Whatever the label, the markup reduces what arrives exactly as a fee would, except that it grows with the amount you convert.
| Term | Where you meet it | What it measures |
|---|---|---|
| Markup | Transfer quotes, bank rates, currency counters | The gap between a quoted rate and mid-market, as a percentage |
| Exchange-rate margin | World Bank and UN remittance data | The same gap, measured against the interbank rate |
| Spread | Counters and screens showing buy and sell prices | The distance between a provider's buy and sell rates, roughly two markups |
| Foreign transaction fee | Card agreements and statements | A separate percentage on top of the card's conversion rate |
| Dynamic currency conversion | Card terminals and ATMs abroad | A conversion into dollars by the merchant's provider, at its own rate |
How do you calculate the markup in a quoted rate?
Divide the quoted rate by the mid-market rate for the same moment and subtract the result from 1, with both rates written as units received per unit paid.
Markup = 1 − (Quoted rate ÷ Mid-market rate)
Most transfer quotes already read that way: pesos, rupees or euros received for each dollar paid. Some quotes run in the opposite direction. A counter selling euros posts a price in dollars per euro, and a card receipt implies the same, so a higher number is worse for you. Flip the ratio in those cases:
Markup = 1 − (Mid-market rate ÷ Quoted rate)
| What you are doing | How the quote usually reads | Formula to use |
|---|---|---|
| Sending dollars to someone abroad | Foreign units per dollar, such as 61.90 pesos | 1 − quoted ÷ mid-market |
| Buying foreign cash before a trip | Dollars per foreign unit, such as $1.22 per euro | 1 − mid-market ÷ quoted |
| Turning money received from abroad into dollars | Dollars per foreign unit, such as $1.31 per pound | 1 − quoted ÷ mid-market |
| Selling leftover foreign cash | Dollars per foreign unit, such as $1.05 per euro | 1 − quoted ÷ mid-market |
A quick sanity check: the markup should come out positive. A negative result almost always means the formula was applied upside down.
Worked example: The markup on $750 sent to the Philippines
A transfer service quotes 61.90 Philippine pesos per dollar with no fee. The mid-market rate at that moment is 63.70.
- Markup: 1 − 61.90 ÷ 63.70 = 2.83%
- At the quoted rate, $750 delivers 46,425 pesos; at mid-market it would deliver 47,775
- The 1,350-peso shortfall is worth 1,350 ÷ 63.70 = $21.19, the real price of a transfer advertised as free
Worked example: Buying €300 in cash at a currency counter
A counter sells euros at $1.22 each while the mid-market rate is $1.1166 per euro. Because the quote is dollars paid per euro received, use the flipped formula.
- Markup: 1 − 1.1166 ÷ 1.22 = 8.48%
- €300 costs 300 × $1.22 = $366.00, against $334.98 at mid-market, so the conversion costs $31.02
- Applying the standard formula instead gives 1 − 1.22 ÷ 1.1166 = −9.26%, and the negative sign shows the ratio is the wrong way up
How do markups and fees add up?
Total cost is the flat fee plus the markup multiplied by the amount converted, so a low or zero fee can hide the most expensive deal.
Total cost = Fee + (Amount converted × Markup)
Because the fee stays fixed while the markup scales with the amount, any two quotes have a break-even amount. Below it, the quote with the lower fee wins; above it, the quote with the lower markup wins.
Break-even amount = Difference in fees ÷ Difference in markups
Worked example: A no-fee quote against a $7.99 fee
Quote X charges no fee and builds in a 2.5% markup. Quote Y charges $7.99 with a 0.6% markup.
- Break-even: $7.99 ÷ (2.5% − 0.6%) = $420.53
- Below about $421, X costs less; above it, Y costs less, and the advantage widens with every extra dollar
| Amount sent | Cost with X: no fee, 2.5% | Cost with Y: $7.99 fee, 0.6% | Cheaper quote |
|---|---|---|---|
| $100 | $2.50 | $8.59 | X |
| $300 | $7.50 | $9.79 | X |
| $421 | $10.53 | $10.52 | About even |
| $1,000 | $25.00 | $13.99 | Y |
| $2,500 | $62.50 | $22.99 | Y |
The arithmetic barely changes when a fee is deducted from the amount instead of added on top; the markup simply applies to a slightly smaller sum. Real prices follow the same pattern. Because fees are mostly flat, the World Bank's global average cost in Q3 2025 fell from 6.36% on a $200 transfer to 4.08% on $500. Choosing the cheapest provider and payment method for your own amount and route is the subject of the cheapest way to send money abroad.
What do 1%, 3% and 5% markups cost on live rates?
A markup takes the same share of value in every currency, so 5% of a $2,500 transfer is $125 whether it arrives as pesos, pounds or rupees.
The tables below apply 1%, 3% and 5% markups to the latest mid-market rates, so you can see the gap in the currency your recipient actually gets. The Philippine peso rate comes from a daily reference source; the pound updates hourly.
| You send | At the mid-market rate | With a 1% markup | With a 3% markup | With a 5% markup |
|---|---|---|---|---|
| $200 | ₱12,741 | ₱12,613 | ₱12,359 | ₱12,104 |
| $750 | ₱47,778 | ₱47,300 | ₱46,344 | ₱45,389 |
| $2,500 | ₱159,259 | ₱157,667 | ₱154,481 | ₱151,296 |
| You send | At the mid-market rate | With a 1% markup | With a 3% markup | With a 5% markup |
|---|---|---|---|---|
| $1,000 | £746.15 | £738.69 | £723.77 | £708.84 |
| $5,000 | £3,731 | £3,693 | £3,619 | £3,544 |
| $12,000 | £8,954 | £8,864 | £8,685 | £8,506 |
Read across a row to see what each markup level removes from that amount, before any flat fee. Converting twice multiplies the damage: dollars changed into another currency and back at a 3% markup each way return 0.97 × 0.97 = 94.09% of the starting sum.
Worked example: Paying a $12,000 tuition bill in pounds
A bank offers 0.7270 pounds per dollar when the mid-market rate is 0.7469. A transfer service offers 0.7440 with a $15 fee.
- Bank: 1 − 0.7270 ÷ 0.7469 = a 2.66% markup, costing $319.72 in value; the university receives £8,724.00
- Transfer service: 1 − 0.7440 ÷ 0.7469 = a 0.39% markup, costing $46.59, or $61.59 with the fee; £8,928.00 arrives
- The £204 difference is worth more than the fee a US bank charges to send an international wire
What is dynamic currency conversion?
Dynamic currency conversion is a foreign shop's or ATM's offer to charge you in dollars instead of local currency, at a rate its own provider sets.
It looks helpful, because you see a dollar figure on the spot. The catch is the rate. Visa's rules require the terminal or ATM to show the amount in both currencies, the exchange rate and any markup, to let you choose freely and not to choose for you; Visa tells cardholders to decline the offer and report it to their card issuer if those details are missing or they feel pressured. Inside the EU, the markup must also be shown as a percentage over the latest ECB reference rate before you pay, a requirement in force since April 19, 2020.
The evidence on price points one way. In a test by the German consumer magazine Stiftung Warentest, cited by the European consumer organisation BEUC, choosing dynamic conversion at ATMs in non-euro countries raised the cost by 2.6% to 12%, and in shops by 2% to 5%. A Norwegian bank's review of 1,500 withdrawals abroad found that taking the home currency was cheaper in only 4 cases.
Worked example: A ¥30,000 dinner in Tokyo
The terminal offers to charge $204.10 instead of ¥30,000. The mid-market rate is 157.50 yen per dollar, so the meal is worth $190.48.
- Effective rate in dollars: 30,000 ÷ 204.10 = 146.99 yen per dollar, a markup of 1 − 146.99 ÷ 157.50 = 6.68%, or $13.62
- Paying in yen on a card that converts at an assumed 157.00 and charges no foreign transaction fee: $191.08
- The same yen payment on a card with a 3% foreign transaction fee: $196.82, still $7.28 less than the dollar option
- Choosing dollars on that 3% card: $204.10 plus a $6.12 fee, $210.22 in total, because the fee can also apply to dollar purchases from foreign merchants
How do card foreign transaction fees work?
A foreign transaction fee is a percentage your card issuer adds to purchases made abroad or with foreign merchants, on top of the exchange rate.
For credit cards, Regulation Z treats the fee as a finance charge, and issuers must list it in the rate and fee table that comes with an application. The CFPB's official interpretation names three triggers: a purchase in a foreign currency, a purchase in dollars outside the United States, and a purchase from a foreign merchant, including through its website. It adds that the fee can combine a network charge with the issuer's own, giving the example of 1% plus 2%, or 3 percentage points in total. A sample agreement in the CFPB's database lists a fee of the same size: 3% of each transaction, calculated in US dollars.
Cash is a separate matter. The CFPB's credit card definitions count ATM withdrawals, buying foreign currency and making wire transfers as cash advances, which usually carry their own fee; in that sample agreement, they also accrue interest from the transaction date, with no grace period. A card with no foreign transaction fee removes the percentage charge but not the conversion rate itself, which you can test against mid-market with the flipped formula.
How can you keep exchange rate markups down?
Measure each quote against a live mid-market rate, decline dollar pricing abroad, and choose providers on total cost for your actual amount.
Before you convert
- Check the mid-market rate for the same pair at the same moment, for example on our dollar to pound page or the currency converter
- Put the quote in units received per unit paid before applying the formula
- Add the flat fee to the markup cost for the amount you will actually send
- Ask whether the quoted rate is locked, and for how long
- At terminals and ATMs abroad, choose the local currency
- Travel and shop from foreign websites with a card that charges no foreign transaction fee
- Avoid converting money and then converting it back
- After paying for a US remittance, you can usually cancel up to 30 minutes after paying, for a full refund if the rate turns out worse than expected
The cancellation right and the disclosure behind it are explained in remittance transfer rights. Bank wires add their own layers on top of the markup, including intermediary deductions and fees at the receiving bank; see international wire transfer fees. Our money transfer cost calculator runs the fee-plus-markup arithmetic for a pound-to-rupee transfer, and the same steps work for any pair. For the rest of the sending process, see how to send money internationally.