How exchange-rate markups hide the real cost of sending money abroad
The fee is only part of what a transfer costs. Here is how to measure the margin hidden in the exchange rate, with worked examples.
Quick answer
An exchange-rate markup is the gap between the mid-market rate and the rate a provider gives you. It works like a percentage fee: a rate 2% worse than mid-market costs 2% of what you send, on top of any transfer fee. To compare providers, add the fee to the markup cost, using the mid-market rate checked at the same moment.
Key points
- The mid-market rate is the midpoint between buying and selling rates and is the fair benchmark.
- A markup is the percentage gap between the mid-market rate and your quoted rate.
- Markup cost equals the amount converted times the percentage gap.
- True cost equals the transfer fee plus the markup cost.
- In the US, providers must disclose the exchange rate and the amount the recipient gets before you pay.
- A low or zero fee can still be expensive if the rate is poor.
Most money transfer services advertise their fee. Fewer advertise the other half of their price: the margin built into the exchange rate. Measuring it takes one extra number, the mid-market rate.
The benchmark: the mid-market rate
The mid-market rate is the midpoint between the rates at which a currency is bought and sold. Any rate below it, from your point of view, carries a markup. Wise says it uses "the live mid-market rate" with an upfront fee, while Western Union says it "also makes money from currency exchange."
The arithmetic
- Markup % = (mid-market rate − your rate) ÷ mid-market rate
- Markup cost = amount converted × markup %
- True cost = transfer fee + markup cost
US example: $500 to Mexico (illustrative numbers)
- Fee: $4.99, leaving $495.01 to convert
- Mid-market: 18.50 pesos per dollar; quoted: 18.10
- Markup: 0.40 ÷ 18.50 ≈ 2.16%
- Markup cost: $495.01 × 2.16% ≈ $10.70
- True cost ≈ $15.69, or 3.1% of $500
UK example: £500 to India (illustrative numbers)
- Fee: £2.99, leaving £497.01 to convert
- Mid-market: 110.0 rupees per pound; quoted: 108.5
- Markup: 1.5 ÷ 110 ≈ 1.36%
- Markup cost: £497.01 × 1.36% ≈ £6.78
- True cost ≈ £9.77, or 2.0% of £500
These are example numbers, not quotes. The true-cost calculator uses them as defaults so you can replace them with your own.
What providers must disclose
In the US, a provider must show the transfer amount, fees, total, exchange rate and "Total to Recipient" before you pay (CFPB, 12 CFR 1005.31), and you can cancel within 30 minutes (12 CFR 1005.34). Those disclosures contain everything the calculation needs.
Comparing providers
Get quotes for the same amount at the same moment and compare the amount the recipient gets, or the true cost. Our US and UK comparisons describe how each provider prices.
Try the numbers
Money transfer true-cost calculator, with a page for each market in its own currency and at its own published prices.
The comparisons
Sending money abroad from the UK: how Wise, Remitly and WorldRemit price transfers
Three UK money transfer services compared on how they price a transfer and what they say about exchange rates, with a true-cost calculator.
US editionSending money abroad from the US: how Wise, Remitly and Western Union price transfers
Three US money transfer services compared on how they price a transfer and what they disclose, with a calculator for the true cost of any quote.
Questions
How do I calculate an exchange-rate markup?
Subtract the rate you were quoted from the mid-market rate, then divide by the mid-market rate. If the mid-market rate is 18.50 and you are offered 18.10, the gap is 0.40, and 0.40 divided by 18.50 is about 2.2%. That percentage of the amount converted is the markup cost.
Is a zero-fee transfer really free?
Not if the exchange rate is below the mid-market rate. A provider can charge no fee and still earn from the gap between the rate it gives you and the rate it trades at. Western Union, for example, says it also makes money from currency exchange. Compare the amount the recipient gets.
Where do I find the mid-market rate?
Currency data sites and many search engines show it. Check it at the same moment as your quote, because rates move constantly. Some providers, such as Wise, say they use the mid-market rate and charge only a fee, which makes their quote easy to check.
Do banks charge markups too?
Banks often convert at their own rate, which can include a margin, and may also charge a fixed fee for an international payment. The same method applies: compare the rate and the fee against the mid-market rate and the amount the recipient receives. Ask your bank for both figures before sending.
What must a provider tell me before I send?
In the US, the CFPB’s remittance rule requires the transfer amount, fees, total, exchange rate and amount to the recipient to be disclosed before you pay, with a 30-minute window to cancel. Those figures are all you need to work out the markup and true cost.