If you use your bank to change currencies or send money abroad, there’s a good chance that you’re getting ripped-off on the exchange rate. Financial institutions often stick a large margin on foreign exchange (forex) rates when dealing with retail clients, figuring that it’s a way to make extra profits without most clients realising what’s going on.
The size of the mark-up varies, but with some banks it can be a premium of 4% or more – sometimes including a fixed fee on top. Given that the bid/ask spread in the interbank currency market (where big institutions trade) is almost non-existent for major currencies, these kinds of margins are clearly excessive.
The good news is that there is often a way to cut them significantly. Instead of using your bank to change currencies, you can use a currency broker (sometimes known as a foreign exchange transfer specialist) or a peer-to-peer currency transfer website. These firms offer far more competitive exchange rates and can often bring the cost down to 1% or less.