Currency Exchange Rates Explained: How to Get the Best Deal in 2025

Most people convert currency without really understanding where the rate they are offered comes from or how much they are losing to fees and margins. Whether you are exchanging money for a holiday, sending a payment to a European supplier, or moving funds after relocating abroad, the difference between a good and a bad exchange rate can amount to hundreds or thousands of pounds on a meaningful sum.

This guide explains how exchange rates are set, why the rate you see quoted is almost never the rate you get, and how to approach currency conversion sensibly in 2025. You can check live mid-market rates using our currency converter to compare against what any provider is offering you.

Where exchange rates actually come from

Currency exchange rates are set by the foreign exchange market, which operates 24 hours a day during weekdays across financial centres in London, New York, Tokyo, and Sydney. The market trades around £6 trillion worth of currency every single day, making it the largest and most liquid financial market in the world. Major banks, currency brokers, hedge funds, and central banks all participate.

The rate that banks trade with each other is called the interbank rate or mid-market rate. You will see this rate quoted on Google, financial data providers, and in news coverage of currency movements. It is not the rate available to individual customers. Banks and currency providers buy at one rate and sell at another, keeping the difference as their margin. This difference is called the spread.

Exchange rates move constantly in response to economic data, central bank decisions, political events, and shifts in investor sentiment. The GBP/EUR rate, for instance, is heavily influenced by Bank of England interest rate decisions, UK economic growth data, inflation figures, and developments around UK-EU trade relations. A surprise inflation reading or a central bank policy change can move rates by one or two percent within hours.

The spread: what it costs you and how to spot it

When a bureau de change or bank quotes you an exchange rate, they are quoting you a rate worse than the interbank mid-market rate. The gap between the mid-market rate and the rate you are offered is the spread, and it is effectively a hidden fee.

On a £1,000 exchange, the difference between the airport rate and a specialist online provider can be £70 or more. Scaled up to a property purchase or a large international transfer, these differences become genuinely significant. A family buying a Spanish property worth €300,000 and exchanging that from pounds could lose several thousand pounds to an unfavourable exchange rate if they use a bank rather than a specialist currency broker.

Beyond the spread, some providers charge explicit fees or commissions on top. Always check what the total cost of the exchange is, including all charges, rather than just looking at the quoted rate. The most honest way to compare is to ask: "If I send you £1,000, how many euros arrive on the other end?"

Why rates differ so much between providers

Airport and hotel bureaux de change charge the most because they have a captive market and high overheads. People converting cash at the last minute before a flight are not shopping around, so providers in these locations can offer worse rates and still get customers. The convenience premium is real, and it comes out of your pocket.

High street banks offer better rates than airports but worse rates than specialists, partly because currency exchange is not their core business and partly because their retail infrastructure is expensive. They tend to profit from customers who value convenience and brand familiarity over the best rate.

Online currency brokers and fintech companies such as Wise (formerly TransferWise), Revolut, and OFX have built businesses specifically around competitive exchange rates. They operate at lower margins by running lean operations and competing primarily on rate. Some charge a small fixed fee and offer the mid-market rate; others build a small margin into the rate and charge no additional fee. Either way, the total cost is usually far lower than a bank or bureau de change.

When to exchange: timing and rate movements

People frequently ask whether they should wait for a better rate or exchange now. The honest answer is that short-term currency movements are extremely difficult to predict, even for professional traders. The GBP/EUR rate has moved by more than 10% within a single year in recent times, which is a significant swing. But nobody reliably knows in advance which direction it will move next.

What you can do is monitor the rate over a period of weeks or months if your exchange is not urgent, and set a target rate with your currency provider to be notified when it is reached. Many online brokers offer rate alerts. If the rate hits your target, you can act quickly. This is more rational than trying to time the market based on news headlines.

For large, planned exchanges like property purchases or salaries, a forward contract can lock in today's rate for an exchange that will happen in the future, typically up to two years ahead. This removes rate risk if you need certainty about the cost of an overseas transaction. The trade-off is that if rates move in your favour after you lock in, you miss out on the improvement. For most non-professional buyers, the certainty is worth more than the upside.

GBP and EUR: the most common exchange for UK travellers and expats

The pound sterling to euro exchange rate is the most actively traded currency pair for UK residents. It affects everyone from holiday makers in Spain and France to expats living in EU countries and businesses buying from or selling to European counterparts.

Since Brexit, the structural relationship between sterling and the euro has changed. Sterling lost significant value against the euro after the 2016 referendum and has broadly traded in a narrower range since the UK formally left the EU. The Bank of England's monetary policy cycle, UK inflation trends, and the state of UK-EU trade relations all have ongoing influence on where the rate sits.

For people who receive income in one currency and spend in another, whether because they work remotely for a UK employer while living in Portugal or receive European clients while based in the UK, managing the exchange rate exposure is worth thinking about systematically. Keeping some funds in each currency, converting in larger batches rather than small regular amounts, and using a multi-currency account like those offered by Wise or Revolut can reduce both costs and friction.

Sending money internationally: what to look for

International bank transfers, sometimes called SWIFT payments, are still widely used but are not always the cheapest option. Banks typically charge a sending fee of £10 to £30, sometimes add a receiving bank fee, and apply an unfavourable exchange rate on top. For regular international payments, the total cost can be substantial over the course of a year.

SEPA transfers within the European Economic Area are much cheaper for euro payments to euro bank accounts. If you have a euro account, sending euros via SEPA is faster and free in most cases, as EU regulations require banks to treat SEPA transfers the same as domestic transfers.

Specialist transfer services like Wise handle international transfers by effectively matching up customers moving money in opposite directions, rather than physically moving funds across borders. This allows them to operate closer to the mid-market rate and with lower fees than traditional bank transfers. For regular transfers of meaningful amounts, the annual saving compared to using a bank can be significant. Use our currency converter to check the current mid-market rate before converting, so you have a baseline to compare any provider against.

Multi-currency accounts for expats and frequent travellers

If you regularly deal in more than one currency, a multi-currency account is worth considering. These accounts let you hold balances in different currencies and convert between them at close to the interbank rate, usually with a small fee. The practical advantage is that you can receive income in euros, hold it until you need it, and convert when the rate is favourable rather than being forced to convert immediately.

Revolut, Wise, and similar products offer this alongside debit cards that work in any currency without foreign transaction fees. For people living in one EU country while maintaining financial ties in the UK, these accounts have become standard practice because they remove a significant amount of friction and cost from day-to-day financial management.

Traditional banks are catching up, with some now offering euro accounts or multi-currency features, but specialist fintech accounts still tend to offer better rates and lower fees for currency conversion specifically. If you are spending significant amounts across currencies each year, running a rough calculation of what you are currently paying in conversion costs is worthwhile. The savings from switching to a specialist provider are often larger than people expect.