Chris Spalding, Caxton head of product development explains the difference:

The way to think of the interbank exchange rate is to think of currency just as any commodity. The interbank rate is the wholesale rate used by traders (banks) to buy and sell between themselves in very high volumes, measured in the 10s of millions.

Thereafter, any company involved in getting the foreign currency to the public adds a little mark-up, resulting in the final retail exchange rate. The difference between interbank and the retail currency is known as the “spread”.

In relation to your credit and debit card, when you make a payment abroad, Visa and Mastercard are a currency retailer – giving currency to the shop or restaurant abroad and charging sterling from your card account.  So, Visa and Mastercard have their own retail exchange rate.

In addition, of course, your card issuer may apply their charges for overseas use – either as a fee or as a percentage of the transaction. You need to check with your card issuer what the overseas charges are.

In the evolving world of currency payments, new service providers are changing their commercial models. Some are reducing their spread but applying limits, for example, to the amount you can transfer or number of ATM transaction you can make in a month.

You need to work out what your volume requirements are to see which model works best for you. Other currency service providers, having used low cost foreign currency as a “loss leader” to build their customer base, are now broadening their services, offering, for example, insurance or mortgages to make their money. It remains to be seen how these businesses grow.