Changing money

How to exchange your dollars for pounds at the best rates (and lowest fees) possible

First things first: How much is a British pound worth?

Currently (mid-2017), US$1 equals 77p; or £1 equals US$1.25.

The daily rate fluctuates, obviously, generally ranging between 75 and 80p to the dollar, and $1.19 to $1.28 to the pound. (Brexit negotiations will likely make the pound less stable and more prone to fluctuations for the foreseeable future.)

OK, now on to how to get your hands on some pounds.

How to change money in the U.K.

Always exchange money at a bank, and always use your ATM card to withdrawal pounds from your home bank account. This is how you will get the best rates and pay the lowest fees or commissions.

If you're in a pinch and need to exchange dollars or traveler's checks from your emergency stash, again: do it at a bank, and read the information below to ensure you get the best deal.

Businesses emblazoned with "Exchange! Cambio! Wechsel! Change!" are exchange booths, and all of them—from venerable Thomas Cooke offices all the way down to the shady guy who hangs around the bus station—offer a worse rate and/or higher commission than banks and should only be used in emergencies.

That's really all you need to know. If you want to know why this is the best advice, dust of your math hat and continue to read on for some dry, but important, technical stuff about exchange rates and commissions. (For more on rates—which is even more boring than the commissions stuff we're about to discuss—scroll down.)

Shopping for the best deal: Rates, commissions, & fees

Let's say, for whatever reason, you aren't using your home bankcard to get money out of a local bank's ATM (I reiterate: that is the fastest, cheapest way to get money abroad), and instead you need to exchange cash or traveler's checks for pounds. Now you need to find the best deal out there.

Most banks display a chart of the current exchange rates they're offering, either in the street window (these days digital and constantly updated) or on a sheet of paper taped up at the international teller's window inside. Make sure you're looking at the rate the bank is buying, not selling, U.S. dollars or whatever your home currency is (if, as usual, there are two columns of numbers next to each currency, the "buy" column is the lower amount).

When comparing rates bank to bank, what you want is the bank whose chart shows the highest number in the "buying dollars" column. This will be the best rate. However, unless you’re using the ATM, you must also factor in the commission fee. Sometimes this is a flat rate equal to a few dollars; sometimes it's a percentage (anywhere from 1% to 10%) of the amount being exchanged.

Occasionally, a slightly less attractive exchange rate coupled with low or flat fee commission can cost you less in the long run than a great-looking rate that's hiding a whopping commission in the fine print. Of course that depends on how much you change. Yes, this is going to involve doing math on a foreign street corner in two currencies.

Warning: On the rare occasion that someone approaches you on the street with a rate too good to be true, it is. That shyster's got black market currency, and if his bills aren't counterfeit, his sleight-of-hand method of counting them out certainly is. Also, you can get arrested.

Demystifying Exchange Rates

The current exchange rate (in mid-2017) is 1.25. That means it costs US$1.25 to buy £1 (conversely, US$1 is worth 77p). The lower this number, the better the exchange rate for you, since it means it costs you less to buy each British pound.

The pound has historically been quite a bit more valuable than that (over the past few decades, on the order of 1.7 to 1.9), but the Brexit vote in summer 2016 severely dented the nation's currency rating.

Now all those numbers represent the official interbank rate, which is what most newspapers print in their business sections. However, this only represents how much it costs banks to exchange money with each other—and it's a rather better rate than you'll ever get.

Other papers, especially in travel sections, print the rate (2% to 4% below the interbank rate) you're likely to receive when exchanging money. When you exchange cash or a traveler's check, you generally get a rate that is 4% "worse" than the interbank rate. This is known as "+4%." It is also known as a "rip-off." If you exchange at any agency besides a bank, you'll probably do even worse.

On top of this, any place will charge you a commission—either a flat fee (in which case changing a lot of money at once is cheaper) or a percentage of the total changed (in which case you're bleeding needlessly no matter how much or little you change).

Luckily, in the past few years computerized banking has ridden in on its white overcharger to save the day—or at least a few bucks for you. If you bypass the outdated and outmoded traveler's checks and steer clear of dealing with actual people, you can shave a few percentage points off. It’s called an ATM, and it works just like it does at home. If you take money out of a cash machine—either using your own bankcard linked to your personal checking account, or with a cash advance on a credit card—you will get that favorable interbank rate. » more

Or at least, you should. In reality, you often don't. You get about 1% to 2% below that prime rate—still better than exchanging cash or traveler's checks, but not the best possible. Luckily, for now, most European banks do not charge that "ATM usage" fee that almost all U.S. banks have jumped on to nickel and dime us to death a bit more. 

But if your home bank charges you for withdrawals from ATMs that are "out of network" (and yes, the U.K. is waaay out of network)—and its usually a steep $1 to $4 fee each time—you're still paying a commission of sorts. » more

I actually shopped around for a bank that doesn't do this (the online bank Ally, which also refunds any fees charged by the ATM itself), so they are out there. Credit unions are also usually a good bet. » more

Even with all that, using an ATM linked to your checking account is, for now, the cheapest way to get money, and paying cash is the cheapest way to travel (outside of using credit cards).