Exchange rates explained: mid-market rate and markups
In short: the mid-market rate is the rate halfway between what banks pay and charge each other for a currency; you'll see it on most currency websites. Transfer providers usually give you a lower rate and keep the difference: that is the exchange-rate markup. The real cost of a transfer is the fee plus the markup, so compare how much money arrives.
The mid-market rate
Currencies are traded all day. At any moment there is a price to buy and a price to sell; the mid-market rate is halfway between. It is the fairest benchmark, but consumers rarely get exactly that rate.
The markup
If the mid-market rate is 1 US dollar = 120 taka and a provider offers 118, its markup is about 1.7% (2 ÷ 120). On $500 that is about $8.33 of value you don't receive, even though it isn't shown as a fee.
Working out the real cost
real cost = fee + amount × (1 − offered rate ÷ mid-market rate)
| Provider A | Provider B | |
|---|---|---|
| Fee | $0 | $5 |
| Rate offered (mid-market 120) | 116 | 119 |
| Amount that arrives | 58,000 taka | 59,500 taka |
| Real cost | about $16.67 | about $9.17 |
The "no fee" option costs more here. Figures are made up for illustration; rates change all the time. Our remittance cost comparer does this sum for you.
Tips
- Compare on the same day, for the same amount; rates and offers change.
- Look at the amount to be received, which US providers must show before you pay.
- First-transfer offers often apply only once.
- Trying to time the market rarely helps much; the provider's markup usually matters more.
Paying by card in another currency
When you pay abroad, or on a website priced in another currency, a terminal may offer to charge you in US dollars. This is called dynamic currency conversion and often uses a poor rate. Paying in the local currency is usually cheaper, though your card may charge a foreign transaction fee. Check your card's terms.
Handy tools
- Remittance cost comparer: compare two transfer options by how much arrives.
General information, not financial advice. Rules, fees and rates change and depend on your situation. Check with your bank, the provider or a qualified professional before you decide.
Sources
- CFPB: Money transfers
- World Bank: Remittance Prices Worldwide
- Bangladesh Bank: Exchange rates
- Reserve Bank of India: Official website