When talking about foreign exchange, most people ask where has ‘the best rate?’
But because currencies fluctuate all the time, you might be comparing apples to oranges.
A better way to find the best value for your money, is to understand how foreign exchange brokers make their money.
You’ll notice these days most exchange houses advertise currency conversion as ‘commission free’.
But we all know nothing is free.
The money they make, for exchanging your money, is hidden in their exchange rate.
Broadly speaking, there is one real exchange rate, the rate banks, financial institutions and currency houses get for moving money.
Then there is the exchange rate they offer to you, which includes their fees.
A simple way to find their mark up, is to look at the spread between where banks, or FX brokers, will buy and sell currencies. The wider the spread, the higher the cost.
You’ll find a familiar pattern.
Banks – Usually charge around a 2-4% markup for major currencies, and you can pay over 5% for exotic currencies. A 2024 survey found the average cost to exchange £1,000 into USD across five UK banks was 3.68%.
| Bank | Cost to Exchange £1,000 to Euros | Cost to Exchange £1,000 to US dollars |
| HSBC | 4.34% | 4.63% |
| Barclays | 4.45% | 4.66% |
| Lloyds | 3.57% | 4.46% |
| Natwest | 2.16% | 2.42% |
| Nationwide | 2.20% | 2.23% |
| Average | 3.34% | 3.68% |
Specialist foreign exchange services – Might cost half as much, charging around 0.8-1%, and providing a dedicated person to help with your transaction.
Online FX brokers – Can be cheaper still, but they often can’t work with every currency, and it can be hard to speak to a person if you need help. (Wise is around 0.71%, Revolut is 0.5-1%)
But cost shouldn’t be your only consideration.
You might also want to consider security and level of service.
Banks are the easiest option, you only have to dealing with one organisation, but are the most expensive.
For high value transactions – like buying a property it makes sense to use a specialist foreign exchange broker.
This gives you a balance between cost, and expertise.
You’ll have a dedicated representative, who can make sure your money turns up, and to talk you through your options.
They also might be able to help you fix a rate to exchange money in the future today, using forward contracts.
For regular small transactions – like converting your monthly savings to invest, an online FX company like Wise or Revolut could save some extra money.
If you found this useful, you might like our free 13 Step Financial Checklist for British expats living overseas.
