If you’ve ever used your credit or debit card abroad, it’s possible that your bank has used the Mastercard exchange rate to determine how much to charge you in pounds. So what is the Mastercard exchange rate? And why is it important? Here’s what you need to know.
What is Mastercard?
When your bank or credit card provider issues you plastic, there’s a good chance it will feature a Mastercard logo.
Mastercard is a global payments processor and one of the largest corporations in the world. It’s estimated that there are approximately 800 million cards that use Mastercard in circulation across the globe.
Due to its global recognition, Mastercard allows you to make payments regardless of where you are in the world.
The Mastercard exchange rate: what is it?
Payment processing giants Mastercard, Visa and American Express each have their own exchange rates. These providers use wholesale currency markets and government-mandated rules to calculate their rates.
So if you have a card featuring the Mastercard logo and you use it abroad, you will be charged the Mastercard exchange rate. You’ll also have to pay any fees that your bank or card provider charges you for using your card abroad.
However, you can avoid these additional fees by getting a travel credit card.
What is the current Mastercard exchange rate?
If you’ve made a foreign transaction on your card, you can determine how much it will cost you in pounds by using Mastercard’s online currency calculator.
The tool even has a box that allows you to input your bank’s fee. Because of this, you can work out exactly how much you’ll be charged for a foreign transaction.
However, Mastercard collates and determines its rate at the end of each working day. Therefore, it isn’t possible to view the Mastercard exchange rate for a transaction undertaken on the same day. Instead, you will have to wait until the day after the transaction.
How does the Mastercard exchange rate compare to the interbank rate?
The interbank rate is often described as ‘perfect’. That’s because it’s the rate banks use when they wish to buy and sell foreign currency.
The Mastercard exchange rate, as well as the Visa and Amex exchange rates, is slightly worse than the interbank rate. This is because payment processors include a markup in their rates, also known as a ‘spread.’ The difference is small, but because of this spread, the Mastercard rate is commonly referred to as ‘near-perfect’.
That being said, a handful of cards offer the perfect interbank rate to retail customers as a selling point. One example is the Revolut Prepaid Card. It offers customers the ability to exchange currencies using the interbank rate on weekdays.
Yet, while the interbank exchange rate is, by definition, unbeatable, unless you’re planning to transfer a large amount of foreign currency or planning a very big overseas purchase, then having to rely on the Mastercard rate is no biggie.
Is it cheaper to pay in pounds when abroad?
Having the chance to pay in pounds whilst abroad, such as in a restaurant, may sound ideal.
However, if you do pay in pounds, the restaurant will do the currency conversion for you using ‘dynamic currency conversion’. This rate will almost certainly be worse than the Mastercard exchange rate. As a result, it’s almost always a better idea to pay in the local currency, whatever it may be.
For more travel money tips, see our list of travel guides.
Some offers on The Motley Fool UK site are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.