Why 0% currency commission is a lie

Don’t fall for the false promises to get the best rates on your currency.

Commission-free sounds great, doesn’t it? Why wouldn’t you go to that bank or bureau de change to get your currency? It surely means you’re not getting charged a penny – not one penny – to swap your sterling for euros, dollars and yen. Except it doesn’t.

These banks and bureau de changes still make cash by setting their own exchange rate. Yes, it’s based on the real rate, but there’s no rule that says it has to be the same. So the claim you’re getting something without commission just isn’t true.

And it’s not just small places claiming to offer 0% commission on currency conversions. Big brands such as Post Office, Asda and Lloyds all say the same.

Of course, I’m not saying these places shouldn’t make money from the transaction. If they didn’t how would they pay staff or cover overheads? But it’s the sneaky way they promote the exchange as fee-free. They’re all claiming to be saving you money, when really using them for your travel money well be costing you cash.

The hidden charges in the exchange rates

Since the profit is being hidden in exchange rates rather than an extra commission, it’s not easy to spot exactly how much you’re being charged. To do so you need to know the real rate the banks themselves use, but even then it’s unlikely the extra will be clear.

And as the banks and bureaus set the rates themselves, there can be a huge difference in what you get for your money.

I’ve visited some local banks and businesses today to find out their rates, and crunched some numbers based on converting pounds into €100. At Natwest, it would cost £92.35, and at Lloyds it would be £92.22. At the Post Office it would work out as a huge £96.15! And if you leave it until you reach the airport, then it’s likely you’ll pay even more.

Without knowing the real rate these numbers don’t mean much, do they? Well the real “interbank” rate, which at the time of writing was 1.1379 euros per £1, puts the cost of €100 at £87.90. That means those places are taking roughly between 5% and 9.5% on each transaction. So much for zero commission!

These were just the rates I found in my local town by popping into the first three places I came across. You can get a far better rate if you do want cash. For example, if you went to Thomas Exchange in London’s Holborn today you’d get your €100 for £88.93. That’s £6.22 less than the Post Office would have charged per £100, and only £1 more than the real exchange rate.

And it is possible to get even closer to the interbank rate if you use a specialist travel credit or debit card. The Halifax Clarity credit card or Starling bank account, for example, would convert at £88.18. That’s likely to be the best you’ll get.

You might be thinking it’s only a few quid, but that’s just for buying €100. If you like to take lots of cash with you (or need to because you’re going somewhere remote), that £9 the cost office makes on €100 can quickly add up.

Why exchange rates can vary so much

Obviously there’s making a profit and covering costs, but there are a number of other factors which could affect how much you pay each time you convert.

First, how much competition is there near you? In London there are dozens of smaller bureau de changes undercutting each other to get your business. Out of the bigger towns and cities though there is less choice, and you could well pay more.

You might even get charged more depending on how much you convert. The Post Office example I gave wasn’t actually on the electronic board. The rate displayed was actually less, but you had to exchange at least £1,000. Even then though it’d have been the equivalent of £91.24 per €100. Better, but not great, and I’m sure lots of people don’t even realise they’d get a worse rate than what was displayed if they wanted less travel cash.

And just because those were the rates I found in my Post Office, it doesn’t mean you’d get the same as each branch has the ability to set a different rate. The Post Office even highlights this on its website FAQs:

“Do all your branches have the same rate? No. Branch exchange rates depend on several factors like branch location, competition, cost of order, convenience, etc. We will always try and offer the best rate, subject to this criteria”.

Confusingly, you can actually get yet another rate at the Post Office by pre-ordering for collection – not something that I saw advertised in my local branch. Today €100 would cost £90.41 this way, lower than just turning up, so if you really need to get your money from the Post Office it’s well worth ordering online to collect.

How to get the cheapest cash for your holiday

1. Use a comparison site

I always use travelmoneymax.com. Enter how much you want to get and your postcode to see the cheapest options.

2. Order in advance

The best rates, even those identified through a comparison site, will normally require you to order in advance. This locks in the rate too, so you’ll know exactly what you’re going to get for your money.

If you do forget and you’re at the airport, then even then you can get online and order to collect rather than walking up to the counter.

3. Collect if you can

The cheapest is always to collect, but you can get prices based on delivery.

4. Get a specialist travel money card

The cheapest way though is to get a card such as the Starling or Monzo current accounts or Halifax Clarity Credit Card. Payments with these are fee-free, and you can get cash out too without charge – though of course there could be extra fees added by the foreign bank.

>> READ MORE: How I get the best travel money

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