Whether you're booking a holiday, sending money to family abroad, or shopping from an overseas website, exchange rates determine how far your money goes. Yet most people accept whatever rate they're given without understanding where it comes from — or how much they're losing to hidden fees.
This guide explains how exchange rates actually work, what the numbers mean, and how to find the best rate for your transaction.
An exchange rate is the price of one currency expressed in another. If GBP/EUR = 1.17, it means £1 buys €1.17. Exchange rates fluctuate constantly — the foreign exchange (forex) market is the largest and most liquid financial market in the world, trading over $7 trillion per day.
The mid-market rate (also called the interbank rate or spot rate) is the midpoint between the buy and sell prices in the wholesale forex market. This is the "true" exchange rate — the one quoted on Google, XE.com, and financial news sites.
Almost no consumer or business gets this rate. Financial institutions trade at or near it; everyone else pays a marked-up version.
Every currency exchanger makes money by offering you a rate worse than the mid-market rate. The difference is called the spread.
On a £1,000 transaction, the difference between the airport and a modern fintech can be €80+. On a £10,000 property purchase or international money transfer, that same percentage difference is thousands of euros.
| Type | How It Works | Examples |
|---|---|---|
| Floating | Set by supply and demand in the open market | GBP, EUR, USD, JPY |
| Fixed/Pegged | Government or central bank maintains rate against a reference currency | HKD (to USD), Saudi Riyal (to USD) |
| Managed Float | Mostly market-driven but central bank intervenes to prevent extreme moves | CNY (Chinese Yuan), INR |
For floating currencies, rates are driven by:
Exchange rates are always expressed as pairs:
For larger transfers (property purchases, international salaries, emigration funds), specialist providers offer far better rates than banks:
| Provider | Typical Rate Margin | Best For |
|---|---|---|
| Wise | 0.3–0.6% | Most currencies, any size |
| OFX | 0.4–0.8% | Large transfers ($1,000+) |
| XE Money Transfer | 0.5–1% | Most currencies |
| High street bank | 2–4% | Convenience only |
On a £50,000 property deposit, the difference between a bank and a specialist transfer service can be £1,500–£2,000.
Convert between 150+ currencies instantly using live mid-market rates. See exactly how much your money is worth before you exchange.
Convert Currency →Every provider marks up the interbank rate and adds fees. The size of the markup depends on their business model — banks have higher overheads and prioritise other revenue, while specialist fintech services compete primarily on rates.
Within 0.5% of the mid-market rate is excellent. Within 1% is good. Above 3% is poor. Check XE.com or Google for the current mid-market rate before exchanging, then compare against what you're being offered.
Sterling's value reflects market perception of the UK economy's strength relative to other countries. Key drivers include Bank of England interest rate decisions, inflation data, employment figures, GDP growth, and political events (elections, trade negotiations, policy changes).
Generally, exchange before you travel or use a fee-free debit card abroad (and withdraw from ATMs in local currency). Avoid airport exchanges and hotel conversions. Never exchange cash for cash if you can use a debit or credit card — the electronic rate is almost always better.