Spreads in currency exchange: what it is and how much it really costs you

Context

In brief

• The spread is the difference between the reference rate published by the Swiss National Bank and the rate at which an institution actually sells or buys the currency.
• The SNB rate updates once a day, while the market rate (ForEx) is constantly changing.
• The spread is incorporated into the rate itself and is used to remunerate banks and institutions for the service and price risk.

Key Facts

• What: The spread is the difference between the reference rate and the market rate.
• When: The SNB rate is updated once a day.
• Where: The market rate (ForEx) is constantly changing.
• Who: Banks and institutions are remunerated for service and price risk.
• Amount: The spread can vary from 1% to 2%.

The spread is an item that almost no site explains in full. It is the difference between the reference rate published by the Swiss National Bank and the rate at which an institution actually sells or buys the currency. The SNB rate updates once a day, while the market rate (ForEx) varies constantly.

The reference rate published by the SNB for the end of July 2026 was close to 0.9295 francs per euro. A salary of 4,000 francs, converted at that rate, would be worth about 4,303 euros. With a spread of 1%, that amount is reduced by about 43 euros. With a spread of 0.3%, typical of more transparent conditions, the loss drops to about 13 euros; with a spread of 2% it rises to about 86 euros.

Concrete examples

• Example 1: A tourist from Lugano wants to convert 5,000 francs into euros for a trip to Italy. If the reference rate is 0.9295 francs per euro and the spread is 1%, the tourist will lose around 50 euros due to the spread.
• Example 2: An entrepreneur from Bellinzona wants to import products from a European country and needs to convert 10,000 francs into euros. If the reference rate is 0.9295 francs per euro and the spread is 0.3%, the entrepreneur will lose around 30 euros due to the spread.

Policies and dates

• The Swiss National Bank publishes the reference interest rate once a day, based on the economic and financial information available.
• The Currency Exchange Act 1992 stipulates that banks and institutions must publish the reference rate and the market rate (ForEx) in a clear and transparent manner.
• The 2015 Consumer Protection Act requires banks and institutions to provide complete and accurate information on the costs associated with currency exchange services.

Operational checklists

• Check the reference rate: Before exchanging currency, check the reference rate published by the Swiss National Bank.
• Check the spread: check the spread associated with the reference rate and calculate the loss due to the spread.
• Compare options: Compare the available currency exchange options and choose the one that offers the best value for money.

Comparisons between practical scenarios

• Scenario 1: Currency exchange with a spread of 1% and a reference rate of CHF 0.9295 to one euro.
• Scenario 2: Currency exchange with a spread of 0.3% and a reference rate of CHF 0.9295 to one euro.
• Scenario 3: Currency exchange with a spread of 2% and a reference rate of CHF 0.9295 to one euro.

Comparing these practical scenarios shows how the spread can have a significant impact on the cost of currency exchange. It is important to choose an institution that offers transparent and competitive conditions to avoid losing money due to the spread.

Operational details

Spreads in currency exchange: what it is and how much it really costs you

The spread is a fundamental concept in the world of currency exchange, yet many of us are not familiar with it. That's why we want to explain it clearly and simply, so you can understand how it works and how much it really costs you.

What is the spread?The spread is the difference between the exchange rate charged by your ATM or bank and the actual exchange rate in the market. In other words, it is the difference between the price at which you can exchange your currency and the price at which you can buy the currency you want.

For example, if the exchange rate of the day is 1 CHF = 0.90 EUR, but your ATM requires 0.85 EUR per 1 CHF, the spread is 0.05 EUR (0.90 - 0.85). This means that for every CHF you exchange, you will lose 0.05 EUR.

How does the spread work?

The spread is proportional to the amount: it weighs in the same way, as a percentage, on one hundred francs or ten thousand. A fixed commission, when there is one, is added regardless of the amount changed, and for this reason it affects small amounts much more than large ones. The net rate is the number that really matters: the reference rate already corrected for spreads and commissions, the one that tells you exactly how many euros you will receive for your francs, or vice versa.

Exemplify with real numbers

Imagine you want to exchange 1,000 CHF for EUR. If the exchange rate is 1 CHF = 0.90 EUR, but your ATM requires 0.85 EUR per 1 CHF, the spread is 0.05 EUR. This means that you will lose 50 EUR (0.05 x 1,000) to change your currency.

But what if your ATM charges a flat fee of 2 EUR for each exchange? In this case, the fixed fee will affect small amounts much more than large amounts. For example, if you exchanged 100 CHF, the fixed fee would be 2 EUR, but if you exchanged 1,000 CHF, the fixed fee would be 2 EUR.

Laws and regulations

The Swiss National Bank (SNB) sets limits for the spread in currency exchange. According to the SNB, the spread cannot be more than 2% of the exchange rate. In addition, the SNB stipulates that banks must inform customers about the spread and fixed fee before making the exchange.

Operational checklist

To avoid losing money due to the spread and fixed commission, follow these steps:

1. Check the spread: Before making the change, check the spread and the fixed commission of your bank. 2. Compare offers: Compare offers from different banks to find the best one. 3. Change to small amounts: If possible, change to small amounts to minimize the impact of the fixed fee. 4. Use an online exchange service: Some online exchange services offer competitive rates with no fixed fee.

Comparisons between practical scenarios

Here's a comparison of two practical scenarios:

Scenario 1: exchange rate of 1,000 CHF in EUR with the spread of 2% and a fixed commission of 2 EUR.

• Exchange rate: 1 CHF = 0.90 EUR
• Spread: 2% of the exchange rate = 0.018 EUR
• Fixed fee: 2 EUR
• Total: 1,000 CHF x 0.018 EUR = 18 EUR + 2 EUR = 20 EUR

Scenario 2: exchange of 1,000 CHF in EUR with the 1% spread and no fixed commission.

• Exchange rate: 1 CHF = 0.90 EUR
• Spread: 1% of the exchange rate = 0.009 EUR
• Total: 1,000 CHF x 0.009 EUR = 9 EUR

As you can see, the second scenario is much more beneficial than the first.

Conclusion

The spread is a fundamental concept in the world of currency exchange, and it can greatly affect your portfolio. To avoid losing money due to the spread and fixed commission, follow these steps: check your bank's spread and fixed commission, compare offers from different banks, exchange in small amounts, and use an online exchange service.

Remember that the Swiss National Bank sets limits for the spread in currency exchange, and banks must inform clients about the spread and fixed commission before making the exchange.

Useful tools to protect your net income

To reduce FX leakage, compare CHF-EUR exchange options and banks for cross-border workers.

Key points

Spreads in currency exchange: what it is and how much it really costs you

Comparing two conditions does not require complicated tools, but a precise order. For example, you should always start with the reference rate published by the SNB on the day of the transaction, not from a value seen days before. You have to ask for the net rate that the institution would apply on the specific amount to be changed, not an 'average' spread valid for any amount. You have to calculate the difference in euros, not just in percentage points, because it is that absolute figure that ends up in the account. And you should check if there is also a separate fixed commission, because on small amounts it can weigh more than the spread itself.

The exchange rate is the price at which one currency is exchanged for another. In Switzerland, most banks market currency exchange at a rate of 2.50% for the Euro-Swiss exchange rate. This means that if you exchange 1,000 euros for 1,025 Swiss francs, the difference of 25 francs is the cost of the exchange.

But be careful! The exchange fee may vary depending on the institution and the amount. Some banks may charge a fixed fee of 10-20 francs per transaction, while others may charge a spread of 1.5-2.5% on the exchange rate.

For example, if you exchange 1,000 euros for 1,025 Swiss francs and apply a spread of 2% and a fixed commission of 15 francs, the exchange cost will be 20.50 francs (2% of 1,025 francs + 15 francs). If a spread of 1.5% and a fixed commission of 10 francs are applied, the exchange cost will be 14.25 francs (1.5% of 1,025 francs + 10 francs).

Here is a concrete example:

• Trade 1: Exchange 1,000 euros for 1,025 Swiss francs with a spread of 2% and a fixed commission of 15 francs. The cost of the exchange will be 20.50 francs.
• Trade 2: Exchange 1,000 euros for 1,025 Swiss francs with a spread of 1.5% and a fixed commission of 10 francs. The cost of the exchange will be 14.25 francs.

As you can see, the difference of 6.25 francs can be significant, especially for transactions of small amounts.

Here is a checklist to compare two currency exchange conditions:

• Start with the reference rate published by the SNB on the day of the transaction.
• Ask for the net rate that the institution would apply on the specific amount to be exchanged.
• Calculate the difference in euros, not just in percentage points.
• Check if there is also a separate fixed fee.
• Compare currency exchange conditions from different banks to find the best deal.

In Ticino, most banks market currency exchange at a rate of 2.50% for the Euro-Swiss exchange rate. But it is important to check the currency exchange conditions of each institution to find the best deal.

Under the Federal Act of 25 May 1994, banks are obliged to publish their currency exchange rates and to provide clear and complete information to customers. In addition, the law of 17 December 2015 introduced the possibility of applying a spread of up to 1.5% on the currency exchange rate.

Here's a comparison of practical scenarios:

• Exchange 1,000 euros for 1,025 Swiss francs with a spread of 2% and a fixed commission of 15 francs.
• Exchange 1,000 euros for 1,025 Swiss francs with a spread of 1.5% and a fixed commission of 10 francs.

The exchange fee for the first transaction is CHF 20.50, while for the second transaction it is CHF 14.25. As you can see, the difference of 6.25 francs can be significant, especially for transactions of small amounts.

In conclusion, it is important to check the currency exchange conditions of each institution to find the best deal. Here's a tip: always ask for the net rate that the institution would apply on the specific amount to be exchanged and calculate the difference in euros, not just in percentage points.

Source: tio.ch