You’ve booked your hotel and flights and now face the daunting task of working out which travel money provider will help you save the most on overseas spending fees. It can be really hard to work out what, in real terms, each provider will charge you - especially when they all use terms like fee-free and 0% commission. We wanted to explain what some of the most commonly used jargon means, so that next time you’re on the hunt you can see through the marketing spiel and understand exactly what each option would cost.
By definition, an exchange rate is ‘the value of one currency for the purpose of conversion to another’. In other terms, if you are looking to travel to Europe on your holidays the exchange rate will show you how much every Euro would cost you to buy in Pounds Sterling.
However, the exchange rate can vary massively from one provider to another. The reason for this is because every provider can set their own rate and will normally be based on the interbank rate plus any markup they would like to include.
It’s also important to note that while a number of providers say fee-free or 0% commission, often the charge is hidden within the exchange rate they are offering.
In simple terms, the interbank exchange rate is the rate, or price, that banks use when they trade large volumes of currency. This can also be referred to as the real rate.
It’s worth bearing this figure in mind so that you have a starting point to compare to whichever provider you are researching. By looking at the real rate you can work out the markup added.
The markup is the percentage added to the exchange rate by a provider when they sell you currency. The amount added is ultimately the revenue they will make when selling you a currency pair.
If you are making payments on a card such as a Visa or MasterCard, there can be a small markup included when you make a payment. For example, Visa adds a markup of around 0.5% to all transactions made on their cards when abroad.
To work out how much you are being charged you can search for the interbank currency online, or use a tool like xe.com. Once you have that figure in your mind you can then work out the percentage charged by any provider. Although, it can sometimes be challenging to find the actual rate charged at any time depending on how transparent a particular provider is.
For example, if you want to buy 500 Euros, and you paid the interbank rate (based on the rate as of 20/10/2021) this would cost you £421.55. But when you look at The Post Office you can see you will be charged £438.10. The reason for this is because there is a 3.8% markup included in the exchange rate, resulting in a fee of £16.55. If you were to use a Currensea travel debit Essential card to spend 500 Euros this would cost you £423.59 as there is a markup of 0.5%, costing you £3.04. So, you can see that the difference in markups can have a big impact on how much your holiday money costs you in real terms.
Currensea wants to keep things transparent so the markup never changes. We have three simple pricing plans, our Essential plan charges a flat rate of 0.5% on all card purchases, and our Premium or Elite plans both charge 0%. Currensea users can access 16 currencies at the interbank exchange rate, the largest fee-free selection on the market - all 164 other currencies are available at the Mastercard exchange rate, the most competitive after the interbank rate.
A full list of comparisons can be viewed here.
The banks are well known for adding fees and charges when you spend abroad, but as you can see below there is a big variance in fees that can quickly add up over the course of a holiday.
Often, when choosing an alternative provider to your bank, you presume that you are getting a better deal. That’s because specialist travel money providers advertise that they are there to help remove the fees high-street banks charge when travelling abroad. While this is often the case, we can see below that some providers actually work out more expensive than the high-street banks.
The above chart gives you an idea of the spread across the market, if you travel regularly the addition of higher markups can quickly add up.
It can be a minefield when looking for the best value currency, especially when most providers claim to not add any fees - plus even if they don’t there may be a fee already added by their issuer.
The best way to make sure you are getting the best deal and avoiding any hidden fees, is researching the interbank rate before you compare providers. If you have a volume of currency in mind (for example £100 worth of Euros) you can easily compare in monetary terms how much it would cost you depending on who you chose.
Never be afraid to put pressure on providers to find out exactly what you could be charged and when, you should expect transparency. After all, it’s your money.
