Yes, banks exchange currency, but not always at the rate you see online
Most banks will exchange one currency for another, but the rate they give you is not the mid-market rate you see quoted on financial websites. Banks buy and sell currency as a service to customers, and they make money on the difference between what they pay for the currency and what they charge you. That difference is called the spread, and it varies by bank, by currency pair, and by how much money you're exchanging.
When you walk into a branch or call to exchange currency, the bank quotes you a rate that includes their markup. For small amounts—say, $500 to $2,000—the spread can be 2 to 5 percent or higher. For larger amounts, the spread narrows, but it rarely disappears. A bank is not trying to cheat you; they are running a service that costs them money to operate. But you should know the markup exists before you hand over your cash.
The mechanics are straightforward: you give the bank one currency, they give you another at their quoted rate, and the transaction settles within one to three business days depending on the currencies involved. If you need the cash in hand the same day, most banks can do it, but the rate will be worse than if you order ahead and let them source the currency from their wholesale suppliers.
Key Takeaways
- Banks charge a markup on top of the mid-market rate, typically 2 to 5 percent for small exchanges, and this markup is not always disclosed upfront.
- The rate you see online is the wholesale rate between banks; your bank's retail rate to you will be worse.
- Larger exchanges and advance orders usually get better rates than same-day cash exchanges.
- Wire transfers to another country use the bank's exchange rate at the time of transfer, and the rate is locked in when you initiate the transfer, not when the money arrives.
- Other services like money transfer companies and peer-to-peer platforms often charge lower markups than banks for international transfers.
How the bank's markup works in practice
Suppose the mid-market rate for US dollars to British pounds is 1 USD = 0.79 GBP. Your bank might quote you 1 USD = 0.76 GBP. That 0.03 difference is the spread. If you're exchanging $1,000, you lose $30 in value right there. On $10,000, you lose $300. The bank does not itemize this as a fee; it is baked into the rate.
The spread changes based on demand, the time of day, and how much currency the bank has on hand. If you want a currency that is less common—say, Thai baht or South African rand—the spread will be wider because the bank has to work harder to source it. If you want euros or pounds, the spread is usually tighter because those currencies trade constantly and the bank can source them easily.
Some banks publish their exchange rates on their website or in the branch. Others only quote a rate when you ask. If you are planning to exchange a significant amount, call ahead and ask what rate they can offer. Some banks will hold a quoted rate for 24 to 48 hours if you are serious about the exchange.
Wire transfers and the rate at the time of sending
When you wire money to another country, the bank converts your money at their exchange rate on the day you initiate the transfer. You do not get to choose the rate or lock it in ahead of time—the rate is whatever the bank's system shows at the moment the transfer is processed. This usually happens within minutes of you authorizing the transfer, but the actual arrival in the other country can take one to three business days.
The receiving bank may also explore an exchange rate if the money arrives in a different currency than your account holds. So if you wire US dollars from a US bank to a pound-denominated account in the UK, your bank converts dollars to pounds at their rate, and the receiving bank may explore their own rate as well. You end up paying two markups instead of one.
Wire transfer fees are separate from the exchange rate markup. A typical international wire costs $15 to $50 depending on the bank and the destination country. The exchange rate markup is on top of that fee.
When banks are cheaper and when they are not
Banks are usually the cheapest option for very large amounts—$50,000 or more—because their wholesale rates are genuinely competitive and the markup becomes a smaller percentage of the total. They are also the only option if you need the money in a specific currency in a specific account, because they can move money directly between accounts.
For amounts under $10,000, money transfer services like Wise (formerly TransferWise), OFX, or Remitly often charge lower markups than banks. These services specialize in international transfers and do not have the overhead of a branch network. Wise, for example, uses the mid-market rate and charges a flat fee plus a small percentage, which often works out cheaper than a bank's spread on the same amount.
Peer-to-peer currency exchange platforms exist but are less common and carry more risk because they involve matching you with another person who wants to exchange in the opposite direction. Banks and money transfer services are more reliable for most people.
How to compare rates before you exchange
Before you exchange currency at a bank, check the mid-market rate on a site like XE.com, OANDA, or Google Finance. These sites show you the real wholesale rate. Then call your bank and ask what rate they will give you for the amount you want to exchange. The difference between the two is the markup you are paying.
If your bank quotes a rate that is more than 3 or 4 percent worse than the mid-market rate for a common currency like euros or pounds, ask if they can do better. Some banks will negotiate on large amounts. If they cannot, get a quote from a money transfer service and compare.
Write down the rate the bank quotes and the time you received the quote. If they say they will hold the rate for 24 hours, get that in writing or at least note the name of the person who told you. When you return to complete the exchange, confirm the rate has not changed before you hand over your money.
Cash exchange at the branch versus ordering ahead
If you need physical cash in another currency, you have two options: exchange it at the branch on the spot, or order it ahead and pick it up a few days later. Ordering ahead is usually cheaper because the bank can source the currency from their wholesale suppliers at a better rate than they can on the spot. Same-day cash exchanges carry a higher markup because the bank has to pull the cash from their vault or pay a premium to get it quickly.
Not all banks keep large amounts of foreign cash on hand. If you need a lot of cash in an uncommon currency, you may have to order it several days in advance. Some banks charge a small fee for this service on top of the exchange rate markup. Ask before you order.
If you are traveling and need cash, ordering from your bank before you leave is usually cheaper than exchanging at an airport or hotel. Airport exchanges are notorious for poor rates—often 5 to 10 percent worse than the mid-market rate—because they know you are in a hurry and have few alternatives.
What happens to the money between when you exchange it and when it arrives
For a cash exchange at the branch, the transaction is complete when you walk out with the cash. For a wire transfer, the money moves through a network of banks called SWIFT (Society for Worldwide Interbank Financial Telecommunication). Your bank sends a message to the receiving bank with instructions to pay the recipient. The receiving bank then credits the recipient's account.
The time this takes depends on the currencies and the countries involved. A transfer between two US banks in dollars takes one business day. A transfer from the US to Europe in euros usually takes one to two business days. A transfer to a country with less developed banking infrastructure can take three to five business days. During weekends and holidays, transfers do not move.
Once your bank has sent the wire, you cannot cancel it or change the amount. You can only ask the receiving bank to return the money, which they may or may not do. This is why it is important to double-check the recipient's account details before you authorize the transfer.
Frequently Asked Questions
Can I lock in an exchange rate before I travel?
Some banks will hold a quoted rate for 24 to 48 hours if you ask, but this is not may provide and depends on the bank. For larger amounts, you can ask about a forward contract, which locks in a rate for a future date, but this is usually only available for amounts over $10,000 and may carry a fee. Call your bank to ask what options they offer.
Why does my bank charge a fee and also give me a bad exchange rate?
The fee and the exchange rate markup are two separate ways the bank makes money on the transaction. The fee covers the cost of processing the transfer. The markup is the bank's profit on the currency conversion itself. You are paying for both services.
What if I need to exchange currency but my bank does not have it in stock?
The bank will order it from a currency supplier, usually within one to three business days. You will pay a slightly higher markup because the bank has to pay to source it. If you need the currency urgently, ask if they can get it faster and what the extra cost would be.
Is it cheaper to use an ATM in another country than to exchange currency at a bank?
Usually yes, for small amounts. ATM withdrawals in foreign currency use the bank's exchange rate plus an ATM fee, which is often $2 to $5. For amounts under $500, this is usually cheaper than a bank's cash exchange. For larger amounts, a bank exchange or money transfer service may be cheaper.
Do I have to exchange currency through my bank, or can I use someone else?
You can use a money transfer service, a currency exchange specialist, or a peer-to-peer platform. You do not have to use your bank. Compare rates and fees across a few options before you decide. For wire transfers to another bank account, you do have to use a bank or a licensed money transfer service.