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What is the Interbank Exchange Rate?

Here at Revolut, we‘re proud to offer our users the real exchange rate. But with so many companies claiming to offer it, how do you separate one from another?

The real exchange, the spot exchange rate, the interbank exchange rate — it doesn’t even stop there. To help set the record straight, we’re going to clearly outline what the key differences are between them.

So, what is the interbank exchange rate?

Essentially, it is the rate at which banks swap currencies between one another. Banks will typically do this directly or through electronic brokering platforms.

Whilst some sites will only advertise daily updates of the interbank rate — the reality is that it is changing every second of everyday. In fact, if you tap on the exchange button in the Revolut app and attempt an exchange, you’ll see the numbers changing continuously.

What is the ‘real’ exchange rate?

In finance, the term ‘real exchange rate’ is used to describe the purchasing power of one currency relative to another and usually refers to an economic theory called purchasing power parity — far beyond the scope of this article.
However, most people who talk about the ‘real exchange rate’ are actually referring to the so-called wholesale rates — made up of the interbank rate plus a markup fee. Companies who offer wholesale rates include MasterCard, Visa and CurrencyCloud, to name a few.

Going a step further, it’s easy to see how your bank profits by offering you, the loyal customer, a heavily marked-up rate, while all their signs scream ‘0% commission and no fees’ — it’s just a marketing scam. Don’t believe us? Ask your bank what rate are they offering you for sending £1000 to a country in the euro zone; then ask them again, but for a £100,000 transfer. Lo and behold, you will be quoted two different rates, both weaker than the interbank rate offered by Revolut.

So, why is this interbank rate so significant for users?

Firstly, Revolut allow its users to lock-in exchange rates in real-time via the app. This rate will not change and therefore our users have full transparency.

Compare this to the MasterCard rate which has a three day processing period. This means that the rate which you initially receive will typically change in three days after your transaction has gone through — it can be risky.
The interbank exchange rate is the best rate available to consumers — especially compared to retail banks, exchange bureaus and the post office.

Revolut offers the real exchange rate, which is based on the interbank rate we described above, to which a small 0.5% markup is applied over the weekend for all but three currencies (THB, UAH, RUB). These three are known as illiquid currencies and as such, they receive a constant 1% markup on the interbank rate for these currencies.

We believe it’s important that consumers understand the terminology behind these descriptions in order to avoid falling victim to false advertisement and therefore a weak exchange rate riddled with hidden markups.