How do exchange rates work?

What is an exchange rate?

In travel money terms, an exchange rate is the price of one currency compared to another. For example, when you buy euros, if £1 equals €1.15 that means you get €1.15 for every pound you exchange. 

Rates move all the time. This is because supply and demand for currencies change across global markets. If lots of people want a currency, its value tends to rise. If demand drops, it can fall.

What makes exchange rates go up and down?

A few key things affect the exchange rate you see:

• Interest rates: Higher rates can make a currency stronger
• Inflation: Lower inflation tends to boost a currency
• Economic stability: Strong economies attract more buyers
• Global events: Political changes or crises can shift demand fast
• Tourism demand: Popular destinations can see seasonal swings

You won’t need to track all of this. But it explains why rates can change between when you plan your trip and when you buy your travel money.

How do exchange rates work for cash currency?

When you buy foreign cash, the rate you get is set by the provider. This isn’t the same as the “interbank rate” you may see online. That’s the rate banks use when they trade with each other. Retail rates will be a bit different.

What you pay for

When buying cash, the exchange rate usually includes the cost of:

• Handling physical money
• Transport and security
• Storage and distribution
• Business costs

So the rate offered reflects more than just the market rate. This is why you’ll tend to see better rates online than in physical locations like Post Office branches (though we make sure those rates are competitive too).

What affects the rate you’re offered?

When you buy cash, your rate can vary depending on:

• Where you buy: Airport exchange desks often offer weaker rates
• How much you buy: Larger amounts can sometimes get better rates
• Timing: Rates change daily
• Delivery or collection options: Some services bundle costs into the rate

How it works with Post Office Travel Money

With Post Office Travel Money, you can:

• Order foreign currency online and in selected branches
• Lock in your rate when you order
• Collect in any branch or choose delivery to your home
• Selected branches also keep popular currencies in stock for walk-in orders

This means:

• You know exactly how much currency you’ll get
• Your rate won’t change after you order
• You can avoid last-minute decisions when you’re under time pressure

Planning ahead gives you more control. You’re not at the mercy of whatever rate is available on the day you travel.

Read more travel money tips

How do exchange rates work for prepaid currency cards?

A prepaid travel card works differently to cash. You load currency onto the card in advance, often in one or more currencies. This gives you more flexibility when spending abroad.

Read more about prepaid currency cards

When the exchange rate applies

There are two common ways rates work with prepaid cards:

• At the point you load the card: You exchange money upfront and lock in the rate
• At the point you spend: The currency converts when you make a payment

Some cards use a mix of both, depending on how you use them.

Why this matters

The timing of the exchange rate affects how much you have to spend:

• Locking in a rate means you know upfront
• Waiting can mean better or worse value depending on what the rate does
• You avoid surprises if it moves suddenly

How it works with a Post Office Travel Money Card

With a Post Office Travel Money Card, you can:

• Load up to 22 different currencies before you travel
• Lock in exchange rates at the time of loading
• Get a rate based on your total order value
• Spend abroad without needing cash for every purchase

What this means for you:

• You’re protected if exchange rates drop after you load your card
• You can check balances and track spending in the free travel app
• It reduces the need to carry large amounts of cash

If you run low on funds, simply top up again. That gives you flexibility while you’re away.

What is dynamic currency conversion?

You might see a choice when paying abroad. Pay in pounds or pay in the local currency.

This is called dynamic currency conversion. It sounds helpful but it can affect the rate you get.

How it works

When you choose to pay in pounds:

• The retailer or ATM converts the price into GBP
• They apply their own exchange rate

This rate is often less favourable than the one your card provider would use.

What’s usually better?

In most cases, it’s better to pay in the local currency. This lets your card provider handle the conversion. You’ll normally get a better rate.

If you’re unsure, take a moment before you tap your card. That quick choice can make a difference.

Read more about dynamic currency conversion

How to get a better exchange rate

You can’t control the market. But you can make simple choices that help you get more for your money.

Simple ways to improve your rate

• Buy early: Don’t leave it until the airport
• Watch the rate: If you see a good rate, consider locking it in
• Avoid last-minute exchanges abroad: These often come with worse rates
• Split your travel money: Use both cash and a prepaid card
• Pay in local currency when abroad: This can help avoid poorer conversion rates
• Plan your budget in advance: It’s easier to spot a good rate when you know how much you need

These small decisions add up. And they can give you more spending power while you’re away.

With Post Office Travel Money you’ll get competitive rates in branch and online. The rate gets better the more you buy and our best rates are available online.