Comparing exchange rates before you pay

Most of us meet an exchange rate on holiday, when buying something priced in another currency, or when sending money to family abroad.

A few minutes of comparing can show which offer gives you more of the other currency for your pounds. This page explains how to set a quoted rate beside a published reference rate, and how to work out the gap.

What a reference rate is

The Bank of England describes a spot exchange rate as the current rate at which one currency can be swapped for another. The Bank publishes daily spot rates against sterling on its website. It says these are statistics, and not official rates.

The European Central Bank publishes euro reference rates each working day, usually at around 16:00 Central European Time. The ECB says they are for information only, and it strongly discourages using them for transactions.

Working out the gap

You can measure a quoted rate against a reference rate with simple arithmetic.

  1. Write down the rate you were offered, as foreign currency per pound.
  2. Find a reference rate for the same day, in the same form.
  3. Take the offered rate away from the reference rate.
  4. Divide the answer by the reference rate, and multiply by 100.

The result is the gap as a percentage of your money. Any separate fee comes on top, so add it to the comparison. Rates move during the day, so a reference rate from a different day gives a rough answer.

Paying by card abroad

Card machines and cash machines abroad often offer to charge you in pounds instead of the local currency. This is called dynamic currency conversion. If you choose pounds, the merchant's bank does the conversion at its own rate. If you choose the local currency, your own card provider converts it.

BEUC, the European consumer organisation, says the merchant's rate is often the costlier of the two. Its advice to travellers is to pay in the local currency. Your own card provider may still charge a fee for spending in another currency.

Sending money abroad

Sending money abroad through a transfer firm is a payment service in UK law. A firm that does this as a business in the UK has to be authorised or registered by the Financial Conduct Authority (FCA). The exceptions are firms that are already another kind of payment provider, and firms that are exempt.

The FCA keeps a public register of the firms it has authorised. The register also lists firms known to be operating without permission, and clone firms that copy the details of a genuine one. You can search it before you send anything.

If something goes wrong

Start by complaining to the bank or firm involved. If that does not settle it, the Financial Ombudsman Service can look at the complaint. It is free, and Parliament set it up in 2001. It deals with complaints about financial businesses, including banks and credit card providers.

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