Buying foreign currency: exchange rates, commission and collection

Buying foreign currency sounds simple: you hand over pounds, you receive euros or dollars. What catches most people out is that the price is not one number. Every seller sets its own exchange rate, adds its own fees or commission, and treats card payments differently. Two people buying the same amount of currency on the same day, from different sellers or with different payment methods, can receive noticeably different amounts.

In travel money terms, an exchange rate is simply the price of one currency compared with another¹. If £1 equals €1.15, you get €1.15 for every pound you exchange¹. The rate you see quoted on the news is not, however, the rate you will be offered at a bureau or bank: sellers build their margin into the rate itself, and that margin is where most of the cost of buying currency sits.

Exchange rates: how the price of currency is set

An exchange rate is the price of one currency compared with another¹. When you buy euros, if £1 equals €1.15, that means you get €1.15 for every pound you exchange¹. The rate moves constantly in response to demand, economic news and interest rate expectations, so the rate quoted this morning may not be the rate you are offered this afternoon.

The rate a consumer actually pays is not the mid-market rate seen on news tickers. Every seller of currency quotes two rates: a rate at which it will sell you foreign currency and a lower rate at which it will buy it back. The gap between the two, often called the spread, is the seller's margin. A seller can advertise "zero commission" and still be more expensive than a rival that charges a fee, because the cost is hidden in the rate. The only comparison that matters is how much foreign currency you receive for a fixed sum of pounds.

The size of the margin varies by seller and by channel. Airport bureaux are widely understood to offer less competitive rates because travellers there have little time or choice, while online orders often let you lock in a rate when you order¹. Some card providers work with a much smaller margin: Currensea, for example, applies a 0.5% markup on the exchange rate for personal accounts³. The same principle applies when money moves in the other direction. Amounts in overseas currencies converted for official purposes must be converted to pounds sterling using the exchange rate either on the date of the transfer or as agreed between the buyer and seller², and a State Pension paid into an overseas account is usually converted into the local currency using the exchange rate at the time of the conversion⁷.

For larger amounts, such as when buying property abroad, the difference between rates becomes substantial, and specialist services exist to fix a rate in advance. The page on buying property abroad covers that in detail.

Commission and fees on top of the rate

Commission is the charge a seller makes on top of the exchange rate. Many travel money sellers now advertise commission-free exchange, but that does not mean the service is free: the seller's profit is in the spread between its buy and sell rates, described above. Others charge an explicit fee, a delivery charge for home delivery, or a minimum order value below which the rate worsens.

Card fees are a separate cost, and they can be larger than the currency seller's own charges. If you use your debit card abroad, your bank applies a foreign exchange fee, often around 3% of the transaction amount⁸. Most credit cards add a foreign transaction fee of around 3% on non-sterling purchases and cash withdrawals⁹. These fees apply when you spend abroad as well as when you buy currency, and they stack: a poor exchange rate plus a 3% card fee plus a delivery charge can easily cost several percent more than the best available deal.

When you withdraw cash on a credit card abroad, you may be charged a foreign transaction fee on top of the usual cash advance fee⁶. The page on using a debit card abroad explains how these fees work when spending rather than buying cash, and prepaid travel money cards explains an alternative that fixes the rate before you travel.

Where you can buy currency: banks, bureaux, post offices and online

Foreign currency is sold through several channels, and each works differently:

The Post Office model shows how online ordering now works: you order foreign currency online and in selected branches, lock in your rate when you order, and either collect in any branch or choose delivery to your home¹. Locking the rate at the moment of order protects you if the market moves against you before you collect.

Banks have been reducing their foreign cash services. Barclays has stopped accepting foreign cash deposits, because most foreign currency payments are now digital and the alternatives are more secure¹⁰. This matters if you come home with notes you want to deposit rather than exchange: fewer bank branches will take them, and you may need a bureau or the Post Office instead.

If someone else collects currency or a payment on your behalf, they will normally need your payment card or voucher, your ID and their own ID¹¹. For collection of an online order, bring the payment method, the order reference and photographic ID.

Paying by credit card: when buying currency counts as a cash advance

Most credit card providers treat buying foreign currency as a cash advance, not a purchase. That changes the cost in three ways: your card provider will charge a cash advance fee, most will also charge you a higher APR, and you will not get an interest-free period even if you repay the bill in full and on time⁹. Interest on cash advances usually starts from the day of the transaction.

The fee does not stop at the cash advance charge. If you withdraw cash on a credit card abroad, you may be charged a foreign transaction fee on top of the usual cash advance fee⁶, and most credit cards add a foreign transaction fee of around 3% on non-sterling purchases and cash withdrawals⁹. Buying currency in the UK with a UK credit card avoids the foreign transaction element but not the cash advance treatment.

This is why paying for currency with a credit card is usually more expensive than it looks, even where the headline rate is good. A debit card, bank transfer or cash avoids the cash advance fee and the immediate interest. The comparison page on taking cash or using a card on holiday weighs the two approaches.

Section 75 and currency orders: what it covers

Section 75 of the Consumer Credit Act 1974 makes your credit card provider jointly liable with the retailer if something goes wrong, meaning you can claim a refund if you get faulty goods or your item never arrives, and it applies even if you only put part of the cost on the card⁹. The protection applies where the cost of the goods or services was more than £100 and less than £30,000⁴.

Currency orders can fall inside this. When the Travelex cyber attack in January 2020 disrupted currency orders, Barclaycard said it was likely that anyone who bought currency using a Barclaycard would be covered under Section 75 should Travelex be unable to fulfil the order, with claims approached case by case⁵. That is a real example of the protection working for travel money bought on a credit card.

Two features of Section 75 matter in practice. First, it applies even if the transaction was only partly financed by credit, and recovery is not limited to the deposit: paying a £50 deposit on the card for a £600 order can still give you a claim for the full amount¹³. Second, it only applies to the individual price of items, not the cumulative total¹⁴, so several small currency orders each under £100 would not qualify individually.

Where Section 75 does not apply to currency purchases

The limits of Section 75 matter as much as its coverage:

• Debit cards and charge cards. Section 75 does not apply to charge cards or debit cards¹⁵. Debit card payments may instead fall under chargeback, a scheme operated by card networks rather than a legal right¹³.
• The £100 and £30,000 thresholds. Section 75 does not apply to a claim relating to any single item with a cash price of £30 or less, or more than £10,000, under the Act's own wording¹⁶, and guidance describes the practical range as more than £100 and less than £30,000⁴.
• E-money accounts. The Financial Ombudsman Service notes that Section 75 might not apply if you used a credit card to put funds into a standard e-money account and then used that account to buy something¹⁷. Loading a prepaid currency card from a credit card is not the same as buying goods directly on the card.
• Pay by Bank. Bank-transfer-based payment options lack Section 75 and chargeback protections¹⁸, so paying for currency that way removes both routes.
• Third-party websites. You will not automatically be protected by either Section 75 or chargeback if you purchase through a third-party website¹⁴.
• Currency fluctuations. Under the Payment Services Regulations 2017, the payer cannot rely on currency exchange fluctuations where the reference exchange rate provided under the rules was applied¹⁹. If the agreed rate was correctly applied, a later movement in the market is not a ground of complaint.
• Short-term running-account credit. Section 75 does not apply to certain debtor-creditor-supplier agreements for running-account credit where payments are made over periods not exceeding three months²⁰.
• Land-secured and high-value credit. Section 75A does not apply to an agreement secured on land²¹, and does not apply where the linked credit agreement is for credit exceeding £60,260 and is not a residential renovation agreement²².

Currency itself also sits outside parts of general consumer law. The Consumer Rights Act 2015 does not apply to a contract for a trader to supply coins or notes to a consumer for use as currency²³, and its Schedule 2 provides that paragraphs 8, 11, 14 and 15 do not apply to contracts for the purchase or sale of foreign currency, traveller's cheques or international money orders denominated in foreign currency²⁴. The Unfair Terms in Consumer Contracts Regulations 1999 similarly exempt contracts for the purchase or sale of foreign currency, traveller's cheques or international money orders denominated in foreign currency from certain of its provisions²⁵. In plain terms: buying currency is treated as a financial transaction, not an ordinary purchase of goods, so the usual rights about quality and description do not apply in the same way.

Leftover currency when you get home

Most banks, bureaux and post offices will buy back leftover foreign notes, but at their buy rate, which is lower than the rate you paid when buying. Coins are often refused, and some sellers charge a buy-back fee or set a minimum. Because Barclays no longer accepts foreign cash deposits, citing that most foreign currency payments are now digital and the alternatives are more secure¹⁰, options for turning notes back into pounds have narrowed.

For prepaid currency cards the timing matters. Aim to use unused funds from a prepaid card within 12 months of returning home, or before the card's expiry date, whichever is sooner²⁶. Check the card's terms and conditions before withdrawing cash in the UK, as some charge fees, and it may be cheaper to use the card for purchases²⁶. If the card has expired, contact your provider to request your money back, which may involve a fee²⁶. The page on leftover foreign currency covers the options in full.

If something goes wrong: complaints and where to get help

If a currency order goes wrong, an amount arrives short, or a provider has taken money and not delivered, the first step is to complain to the business itself. Consumers may choose to complain to the firm and seek redress from it, and refer the complaint to the Financial Ombudsman Service if the firm does not satisfy the complaint²⁷. If you are not happy with the firm's response, or it does not reply within eight weeks, you can bring the complaint to the ombudsman²⁸.

The ombudsman can look at complaints about businesses that send money abroad, including a high street bank, a specialist money transfer and remittance business, an online payment service, or a foreign exchange specialist²⁹. It also handles complaints about bank accounts and bank cards, and problems with loans³⁰, and issues such as account closures, disputed transactions, IT failures and problems with switching services³¹. Where the business involved is an e-money provider, such as many prepaid currency card issuers, the ombudsman can tell the business to put things right and may also tell it to pay compensation for distress or inconvenience³². Complaints in this area are not rare: the ombudsman recorded 101 complaints about international transfers in a single quarter³³.

If you were tricked into making a payment, the ombudsman may be able to help if you are unhappy with how your bank or payment services provider handled the scam³⁴. Free, impartial guidance is available from MoneyHelper, and the section page on money abroad brings together the related guides on travel money, cards and transfers.