How Exchange Rates Work — Mid-Market vs Bank Rates

Exchange rates measure how much of one currency buys another. They change constantly based on supply and demand in global currency markets. Understanding the difference between the market rate and what you actually pay is key to saving money on international transactions.

What Is the Mid-Market Rate?

The mid-market rate (also called the interbank rate) is the midpoint between the buying rate and selling rate on global currency markets. It is the rate you see on Google Finance, XE.com and our currency converter. It represents the fairest, most transparent rate available — but it is not what you typically get from a bank or exchange bureau.

Why Banks Charge More

Banks and exchange bureaux add a markup (called the spread or margin) above the mid-market rate. This spread is how they profit on currency transactions. A typical bank spread is 2–5% for retail customers. On a £10,000 international transfer, a 3% spread costs £300.

What Moves Exchange Rates

The biggest driver is interest rates — central bank rate decisions cause the most immediate currency movements. Higher rates attract foreign capital, strengthening the currency. Economic data (GDP, inflation, employment), political events, trade balances and market sentiment also play major roles. The US Federal Reserve, European Central Bank, Bank of England and Bank of Japan decisions are the most widely watched.

How to Get a Better Exchange Rate

For international money transfers, compare specialist services against your bank. Wise (formerly TransferWise) uses rates close to the mid-market. OFX, Revolut and CurrencyFair are other well-regarded options. For travel cash, avoid airport bureaux (highest markups) — use a travel debit card like Starling, Monzo or Wise, which exchange at close to the mid-market rate with no transaction fees.

Frequently Asked Questions