Why banks’ exchange rates differ from specialist providers – and what that means for you

When you’re transferring money overseas, you’ll notice something that at first appears strange: the exchange rate your bank offers is worse than what’s quoted on Google or by a specialist currency provider. Why is that? And – more importantly – what does it mean for your international payments?

In this post, I’ll unpack how exchange rates work in practice, why banks tend to charge more, and the advantages of using a currency specialist.

Mid-market rate vs retail rates

First, it helps to clarify what we mean by different rates. The mid-market rate – or the inter-bank rate – is the rate you’ll see online when you search a currency pair. It’s effectively the midpoint between what large banks trade with each other. However, the rate you get offered by your bank as a consumer is different. Instead, you’ll get quoted a rate that’s been adjusted (worsened) by the bank to cover their costs and profit margin.

Specialist currency providers can offer a rate that’s much closer to the mid-market rate because they specialise in foreign exchange and often have lower overheads. Therefore, when you compare what your bank is offering to what you see online or what a currency specialist is quoting, the difference can be quite large.

Why banks’ rates are typically less favourable

When you need to send money overseas, your first instinct might be to use your bank. After all, you’ve trusted them with handling your finances for years, so surely they're the best option? Understanding why banks offer significantly worse exchange rates than currency specialists will help you break this cycle – and save hundreds or even thousands of pounds on your international payments.

Spreads/mark-ups

Banks apply a spread or markup to the mid-market rate, thereby making a margin on every currency conversion. That means you’re effectively paying more, in terms of the rate you receive, for the convenience of using your bank. For example, the mid-market rate might be £1 = €1.17. Your bank might offer you £1 = €1.14. That 0.03 difference is effectively a cost (on top of any visible fee) built into the rate.

Higher overheads and less FX specialisation

Foreign exchange is not a bank’s specialism; it’s one of many financial services it provides. They have higher fixed/variable costs to cover amid responsibilities like large branch networks, full banking infrastructure, and regulatory overheads.

Risk, volume and less flexibility

With a large volume of customers to serve across multiple services, banks typically have less flexibility or incentive to offer competitive exchange rates for smaller transactions. They may also apply a higher margin for less common currency pairs or for lower volumes.

Hidden fees and less transparency

The cost of making a currency conversion is often hidden within the rate you’re quoted, with most banks unprepared to break down exactly what markup they’ve applied. This lack of transparency means you can’t easily compare rates.

Smaller competitive pressure

Because many customers default to their bank out of convenience or habit, these institutions may not feel the competitive pressure to lower their foreign exchange margins. Meanwhile, currency specialists compete heavily on rate, service and transparency.

Get a free quote from a currency specialist and see how much you could save.

Why currency specialists can offer better value

For overseas property buyers – and anyone regularly transferring larger sums overseas – a currency specialist is typically the most cost-effective and transparent option. Here’s why:

·       They tend to offer rates much closer to the mid-market rate, meaning you get more value for your money when making international payments.

·       They usually show you the markup/spread separately, or at least make the rate clear, so you know what you're paying.

·       They offer access to tools like forward contracts and market orders, allowing you to lock in or target a rate, which banks may either not provide or only offer to large corporate clients.

·       They specialise in supporting clients who exchange and transfer money overseas frequently, such as overseas property buyers. Therefore, they can offer dedicated support, tailored service, and in many cases lower overall cost.

What this means for you

The practical implications of these differences can be substantial for regular or large one-off transfers.

If you're making monthly payments abroad – whether for a mortgage, paying property maintenance costs or supporting family – the difference between bank rates and a specialist’s rates compounds over time. Even saving 1-2% per transfer adds up to significant amounts annually.

When you’re making a large one-off transfer, such as an overseas property purchase, uncompetitive exchange rates can significantly inflate the total cost of your payment. Fore example, on a £250,000 property transaction abroad, a 3% difference in exchange rate costs you £7,500 – a figure that could cover legal fees, surveys, or moving costs.

The evidence is clear

For virtually any international money transfer beyond small, irregular amounts, specialist currency providers offer better value than banks. The confluence of more competitive exchange rates, lower fees, greater transparency, and specialised support means you keep more of your money working for you rather than paying for banking overheads.