The rate in your app is not the rate you get
Not a scam. Just a number that means something more specific than most people assume.
Open any currency converter — ours, Google's, your bank's — and the number you see is almost certainly the mid-market rate. It is the midpoint between what buyers are bidding and what sellers are asking in the wholesale currency market, and it is the closest thing there is to a "real" exchange rate.
It is also a rate that essentially no consumer receives.
Where the difference goes
Everyone who converts money for you takes a margin, and they take it in one of two ways: a visible fee, or a worse rate. The second is more common because it is less visible.
| Where you convert | Typical distance from mid-market |
|---|---|
| Specialist transfer services | Small, usually with the fee shown separately |
| Card networks (Visa, Mastercard) | Close to mid-market, before your bank adds anything |
| Your bank on top of that | Often around 3% as a foreign transaction fee |
| ATMs abroad | Bank rate plus a per-withdrawal fee, sometimes both ends |
| Airport bureau de change | The worst rate you will be offered anywhere |
| Dynamic currency conversion | Chosen by the terminal operator, typically 3–7% worse |
Buy rate, sell rate, and the spread
A bureau de change displays two numbers: what it will pay you for a currency, and what it will charge you for it. The gap between them is the spread, and it is the business. A wide spread is how a place advertising "0% commission" still makes money — the commission is in the rate.
A quick test: look at both numbers on the board and compare them to the mid-market rate in your app. If the mid-market rate sits roughly in the middle and the two numbers are close together, the spread is reasonable. If mid-market is nowhere near the middle, you are the margin.
So what is the app rate for?
Three things, all useful:
- Judging a price. Is this dinner expensive? The mid-market rate answers that perfectly well.
- Judging an offer. A bureau quoting 8% off mid-market is telling you something, whether or not it means to.
- Catching a mistake. If your statement is far from what the app said, something happened — often dynamic currency conversion.
What it is not for is predicting your statement to the cent. Budget a few percent and you will never be unpleasantly surprised.
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