The rate is rarely the rate
If you pay by card abroad or exchange cash, you almost never get the rate quoted in the news. Between the neutral reference rate of the European Central Bank and the amount on your statement there are markups and fees. Individually they seem small; together they quickly add up to a double-digit sum on a trip.
Where the costs hide
When paying in a foreign currency there are three typical sources of cost:
1. The rate markup: the provider uses a rate that is worse than the reference rate. You do not see it at first glance because no fee item appears.
2. The foreign transaction fee: a percentage fee on the converted amount, around 1 to 2% on many cards.
3. Fixed fees: for example an amount per cash withdrawal, charged by your bank, the machine operator or both.
Then there is dynamic currency conversion. Here the terminal or cash machine offers to charge you in euros straight away. The operator then uses its own rate. Markups from 3% to more than 10% are not unusual.
What the EU requires
For payments in euros within the EU, the rule is that they may not cost more than a comparable domestic payment. A foreign transaction fee for card payments in euros in Spain or Italy is therefore not allowed.
For payments in other EU currencies such as the złoty, forint or Swedish krona, the EU improved transparency with Regulation (EU) 2019/518. Since April 2020, card issuers have had to state their currency conversion charges as a percentage markup on the latest ECB reference rate. After a card payment in another EU currency they also send you an electronic message with this figure. Anyone offering a conversion into euros at a terminal or cash machine must also disclose the markup before the payment.
For currencies outside the EU, such as the US dollar, the Swiss franc or the Turkish lira, these obligations do not apply in full. There, the only help is the price list and doing the maths yourself.
How to calculate your actual markup
With the reference rate of the payment day you can work out any markup yourself. You need the amount in foreign currency, the amount debited from your account and the reference rate.
1. Convert the foreign amount into euros at the reference rate: foreign amount ÷ rate.
2. Divide the debited amount by this result and subtract 1.
3. Multiply by 100. The result is your markup in percent.
Example: you pay 1,000 zł in Poland. At the reference rate of 4.3823 that is €228.19. You are debited €232.76. Then 232.76 ÷ 228.19 = 1.020, so the markup is 2.0%. You can check the percentage calculation with the percentage calculator.
Exchange offices can be compared too
The comparison works the same way for an exchange office. If it offers you 4.20 złoty for one euro while the reference rate is 4.3823, you receive 4.20 ÷ 4.3823 = 95.8% of the equivalent value. The hidden markup is therefore a good 4%. If a fixed fee comes on top, it gets more expensive accordingly.
What markups cost on a trip
With a travel budget of €1,500 in foreign currency, every percentage point is worth €15. With a 1% markup you pay €15 extra, with 2% it is €30, with 5% already €75 and with 10% a full €150. The currency converter shows the effect for your own amount via the “markup” field.
Five tips against expensive markups
1. At terminals and cash machines always choose the local currency; never let them convert into euros straight away.
2. Before your trip, check in the price list what fee your card charges for foreign currencies.
3. Withdraw larger amounts less often if a fixed fee applies per withdrawal.
4. Do not exchange cash at airports and stations, where spreads are usually largest.
5. After the trip, spot-check your statements against the reference rate.
Read more about the background of the reference rate in The ECB reference rate explained.