A correspondent bank is a bank that holds an account for another bank so it can make and receive payments in a currency or country where it has no branch of its own. When you send money abroad, your payment often passes through one or more of these banks — acting as intermediaries — before it reaches the person or business you are paying. Each link in that chain can add a little time and, in some cases, deduct a fee, which is why a large international transfer can arrive later or lighter than expected.
For a straightforward payment in a major currency the chain is usually short and quick. For a large sum, an unusual currency, or a payment where every pound matters, it helps to understand how the route works, what it can cost, and how to keep the money moving cleanly. This guide explains the correspondent banking system in plain terms and shows where it matters for anyone sending money from the UK.
What is a correspondent bank?
A correspondent bank is a financial institution that provides payment services on behalf of another bank in a market where that second bank has no direct presence. The two banks agree a relationship and hold accounts with each other so money can be settled across borders. Swift, the global messaging network that carries payment instructions between banks, describes correspondent banking as the arrangement under which one bank holds deposits owned by another and provides payments and related services to it.
The bank you instruct is the sending, or originating, bank. The bank that finally pays your beneficiary is the receiving, or beneficiary, bank. If those two do not deal with each other directly, one or more correspondent banks sit in between to bridge the gap. Because they stand in the middle of the payment, these are also called intermediary banks. It is the same idea as an international money transfer more generally — only seen from the banks’ side of the wire.
What is the difference between a correspondent bank and an intermediary bank?
The two terms describe the same role from different angles. “Correspondent bank” refers to the standing relationship — the bank that another bank keeps an ongoing arrangement and accounts with. “Intermediary bank” refers to a bank that sits in the middle of one particular payment, passing it along the chain. A correspondent bank is often the intermediary on your transfer, but a payment can also route through an additional intermediary that neither your bank nor the beneficiary’s bank deals with directly. The more of these steps a payment needs, the longer the chain.
How does money move through the correspondent banking chain?
Banks settle cross-border payments through accounts they hold with one another, known as nostro and vostro accounts. A nostro account is “our account with you” — the account your bank holds, in a foreign currency, at a bank abroad. A vostro account is “your account with us” — the very same account seen from the other bank’s side. No physical cash crosses a border; the banks simply debit and credit these mirror accounts.
Say you send pounds converted to euros to a Spanish account. Your provider passes the payment to a bank that holds a euro account inside the euro system, which credits the beneficiary’s bank, which pays the beneficiary. Where a direct account relationship exists, that is one clean hop. Where it does not, the payment is routed through an extra intermediary that can reach both sides, adding a step. The BIC (Swift) codes on your instruction are what tell each bank where to send the payment next, alongside the other clearing codes that identify the right institution and branch.
Why does my international transfer go through a bank I’ve never heard of?
Because no bank can hold an account in every country and currency in the world. Where your bank has no direct relationship with the beneficiary’s bank, it uses a correspondent that does. For many payments the bridging currency is the US dollar, which is why a transfer to a US account, or even a payment between two non-dollar countries, can pass through a US bank on the way — and in some cases briefly convert into dollars in transit.
These relationships have also been thinning out. Data published by the Bank for International Settlements shows the number of active correspondent banking relationships worldwide fell by around a fifth between 2011 and 2018 as banks withdrew from markets they judged higher-risk — a trend the BIS calls “de-risking.” Fewer direct relationships can mean longer chains for less common currencies: more hops, more handling, and less visibility over where a payment sits at any given moment.
Do correspondent banks charge a fee?
Yes. An intermediary bank can deduct a handling charge from the payment as it passes through, usually a fixed amount rather than a percentage. On a chain with two intermediaries you might see two separate deductions, which is one reason a beneficiary can receive slightly less than the figure you thought you sent.
Who bears that cost is set by a charge code on the instruction: OUR, where you pay all charges and the beneficiary receives the full amount; BEN, where charges come out of the amount sent; or SHA, where they are shared. If it matters that your beneficiary receives an exact figure — a property completion payment, for example — it is worth getting the OUR, BEN or SHA option right before you send. For most senders, though, these deductions are small next to the exchange-rate margin built into the conversion. The rate is where the real money is won or lost, as the worked example below shows.
How are different payments routed?
Not every payment travels the same way. The route depends on the currency, the corridor, and whether the banks involved deal with each other directly.
| Routing scenario | When it applies | Banks involved | Effect on cost and speed | Tracking |
|---|---|---|---|---|
| Direct relationship | Major-currency corridors such as GBP to EUR or USD | Sending bank holds a direct account with a bank in the destination market | One hop; quick and transparent; little or no intermediary deduction | End-to-end via Swift gpi |
| Chained intermediaries | Less common currencies, or where no direct relationship exists | Two or more correspondent banks bridge the gap | More steps; each can add time and a deduction; risk of double conversion | Harder to trace; gpi helps where used |
| Domestic, single currency | Paying a UK provider’s sterling account before any conversion | No cross-border chain; settles inside the UK | Same day; no intermediary deduction on the sterling leg | UK payment reference (CHAPS or Faster Payments) |
That last row is worth noting. A domestic sterling payment does not need a correspondent chain at all: it settles directly across accounts at the Bank of England through CHAPS, its real-time gross settlement system. That is why paying a UK currency broker in pounds — and letting the broker handle the conversion and the cross-border leg — can keep your side of the payment simple and same-day.
Worked example: what the correspondent chain actually costs
The figures below are illustrative, chosen to show the scale of each cost rather than today’s rate.
Suppose you send £200,000 to a euro account at an illustrative rate of 1.17. That converts to €234,000. If the payment routes through two intermediary banks that each deduct an illustrative €20 handling fee, your beneficiary receives €233,960 — about €40 less.
Now compare that with the exchange rate. Had the same £200k converted at 1.15 rather than 1.17, the beneficiary would have received €230,000 — €4,000 less. The correspondent-bank deductions cost tens of euros; a two-cent difference in the rate costs thousands. Both are worth managing, but on a large transfer the rate is roughly a hundred times more important than the intermediary fees.
That is the core lesson of the correspondent system: watch the rate first, then keep the routing clean so the payment is neither delayed nor trimmed on the way. You can benchmark any rate against the live mid-market GBP to EUR reference rate before you commit.
How can I track a payment through correspondent banks?
Modern cross-border payments carry a unique reference that lets each bank in the chain report where the money is. Swift’s gpi (global payments innovation) service attaches a Unique End-to-end Transaction Reference (UETR) to a payment so it can be followed from the sending bank to the beneficiary bank, much like a parcel tracking number. Swift reports that gpi has cut cross-border payment times to minutes, and in many cases seconds, with the large majority of payments credited the same day.
If a payment seems to have stalled, your provider can request an MT103 — the Swift message that confirms the payment details and the banks involved — and use the UETR to see which bank is holding it. A payment sitting at a correspondent bank for a compliance check is one of the most common reasons an international transfer is delayed, so knowing where it is usually points straight to the fix.
Can you avoid correspondent banks on a large transfer?
You cannot remove the underlying system, but you can shorten the chain and reduce its effect. Three things help most:
- Send in the destination currency. Converting to euros or dollars before the money leaves means the payment arrives ready to credit, avoiding a second conversion by the receiving bank when you fund an overseas account.
- Use a provider with strong banking relationships. A specialist that holds accounts in the major currencies can often route a payment through a single, direct step rather than a longer chain.
- Get the beneficiary details right first time. A wrong IBAN or a mismatched name sends the payment down a slower recovery route through the same intermediary banks, so it pays to verify the international bank account before you send.
This is where a specialist currency broker earns its place on a large payment. Cambridge Currencies fixes the exchange rate up front with a dedicated specialist by phone, handles the compliance checks that most often hold a payment up at a correspondent bank, and routes transfers through established banking relationships so they settle cleanly. Client funds are safeguarded through its FCA-authorised partners Currencycloud (FRN 900199) and ScioPay (FRN 927951), held separately at a credit institution from the firm’s own money.
Common mistakes when sending through the correspondent banking system
- Assuming the advertised fee is the whole cost. The exchange-rate margin usually dwarfs any wire or intermediary fee. Check the rate, not just the headline charge.
- Leaving the charge code on SHA when the beneficiary needs an exact amount. A completion payment can arrive short if two intermediaries each take a slice — the OUR option keeps the beneficiary whole.
- Sending sterling and letting the receiving bank convert. That hands the exchange rate — and a second margin — to a bank you did not choose, the same trap behind money that arrives in the wrong currency.
- Judging a route by speed alone. A fast payment at a poor rate still costs more than a same-day payment at a good one.
- Not keeping the tracking reference. Without the UETR or MT103, chasing a stuck payment through several banks is far harder, and it is the first thing you will want when asking how long a transfer should take.
Frequently asked questions
What is a correspondent bank in simple terms?
It is a bank that another bank uses to make payments in a currency or country where it has no branch of its own. The two hold accounts with each other, so your payment can be passed along until it reaches the beneficiary’s bank.
Is an intermediary bank the same as a correspondent bank?
Effectively, yes. “Correspondent” describes the standing relationship between two banks; “intermediary” describes a bank that sits in the middle of a specific payment. The correspondent bank is usually the intermediary on your transfer, though a payment can pass through more than one.
Why was money deducted from my international transfer?
An intermediary bank in the chain may have taken a handling fee. Whether that comes out of your payment depends on the charge code used — OUR, BEN or SHA. The larger cost is usually the exchange-rate margin rather than these fixed deductions.
Can I see which banks my payment passed through?
Often, yes. Payments sent with a Swift gpi UETR can be tracked end to end, and an MT103 confirmation shows the banks involved. Your provider can pull both if a payment needs chasing.
How do I stop my money being converted twice?
Convert to the destination currency before the payment leaves the UK, so it arrives ready to credit. Sending sterling and letting the receiving or intermediary bank convert is what leads to a second, costlier conversion.
Are payments through correspondent banks safe?
They run on regulated banking infrastructure that moves cross-border payments every day. Using a specialist adds a further layer of protection: with Cambridge Currencies, client funds are safeguarded through FCA-authorised partners and held separately at a credit institution, so they are kept apart from the firm’s own money.
How long does a payment through correspondent banks take?
A major-currency payment with a direct relationship can arrive the same day; a longer chain through several intermediaries can take a few working days, and a compliance check at any bank in the chain can add time. Tracking the payment shows where any hold-up sits.
Speak to a specialist about routing a large payment
If you are moving a significant sum abroad and want it to arrive cleanly, request a quote and a dedicated dealer will talk you through the rate, the charges and exactly how your transfer will be sent — all by phone, with no app or chatbot in between.
