Also known as Market Rate, Mid-Market Rate & Spot Rate
If you have ever checked the current exchange rate between 2 currencies, then you probably used a currency converting website such as www.xe.com or www.oanda.com. Even more likely, you simply googled ‘what is the GBP to EUR exchange rate’ or something similar. You would then see, above any other search results, Google’s own FX results displayed.
The rate that will be displayed on these platforms is something called the ‘interbank rate’. However, it is also referred to as some other names i.e. ‘mid-market rate’, ‘spot rate’, or ‘real exchange rate’, amongst other things.
What the Interbank Rate refers to is the mid point of the buy and sell rate on the open currency markets. This means that this rate is in the middle of the range that is currently traded. That means it is pretty much as close to the actual exchange rate at any given time. It also means that it is constantly changing. At least whilst an exchange is open somewhere to trade on of course.
Do your transfers at Interbank Rate if you can
As a normal consumer, it is pretty much impossible to get the exact exchange rate for your transfer. In the last few years however, companies such as Transferwise, XE, TorFX, OFX, and many others have enabled consumers to get extremely close.
As a consumer, it is important to understand the Interbank Rate in the context of how to assess who is best to use for your own currency transfers. Essentially you want to be as close to the Interbank Rate as possible. Many companies such as the above mentioned, now claim to offer transfers at Interbank Rate (although they will always have additional fees for the transfer, as otherwise they would make no revenue).
Traditional banks, on the other hand, will usually set their OWN exchange rate for any transfer that is done by them. This will always be worse than Interbank Rate. This means that you will get less money once the transfer has been done, and any difference between the rate you are given and the Interbank Rate, is profit for the bank. They will often also add a fee for the transfer too!
We compared a traditional bank with Transferwise for making a currency transfer.
Therefore it is crucial that when making any currency transfer, you check the Interbank Rate on one of the platforms mentioned above. You can then make an informed decision on the provider you choose for your transfer.