Why does traveler's check get better exchange rate than cash

I still don't understand why travelers check get better exchange rate than USD cash.
I assume a travelers check needs to be processed, and there must be some cost for the bank to process these checks.
But with cash, it is a simple exchange with a central/foreign bank.

I still don't understand why travelers check get better exchange rate than USD cash.

I have wondered that myself and can only suggest a couple nonauthoritative reasons.

Of course, you pay a small fee for many travellers checks. Also, the check grantor then gets to invest the cash that you give him and earns interest while you haved a piece of paper that earns nothing. In addition I would suppose that some travellers checks never make it back and there is some profit for the grantor in that. So the travellers check issuers give you good reasons to use them, like better exchange rates.

I also suppose that settling travellers checks could be done electronically, as opposed to cash which would eventually have to be handled back to the originating country's bank (and weight is why foreign coins never seem accepted anywhere).

The rate is not as good as it may appear. I believe there's a 33 baht fee for TC. And it generally costs 1% when buying TC.

From the perspective of the money changer I'm *guessing* that AMEX guarantees payment even if counterfeit so money changers find cash riskier.

Are any of you able to buy 500 dollar traveller's checks from your local bank? Mine only sells 100s and 20s and the 33 bahts add up. A different bank where I wasn't a customer wanted to charge some added service fee.

In the UK some places do not have a commission charge when selling TCs, like the Nationwide, they are free. From my experience, they are brilliant, not only do you get up to 3/4 of a bht more per pound, and pay small stamp duty and a small fee. I think cashed 200 pound and was charged about 70 bht in total, something like that. I think that is brilliant.

As opposed to a lower rate for cash and a rip off low rate for credit cards and a charge of 1 or 1.5% and if you have a credit card there are interest charges on that. All in all a real good deal having TCs.

I have never compared the "bank rate" (or that rate I see online in charts of foreign currency vs the dollar) to the rate I see at any foreign currency exchange counter. But I do notice the buying/selling spread at the counter which can be as high as 5-7%. Thus I suspect you pay as much as 3% when you exchange cash, maybe 2% with travellers checks.

But I do compare the "bank rate" with bank statements (and credit card statements) and find they are generally in line with what the banks tell me, that ATM currency conversion fee is about 1%, plus ATM per transaction usage fees, as high as $1.50, which for $500.00 results to be a very low additional percentage. I stick with the ATM card, never being absolutely sure this is the best option..

Does anyone ever check the bank rate against the counter rate?

As opposed to a lower rate for cash and a rip off low rate for credit cards and a charge of 1 or 1.5%

You mention the Nationwide's free TCs. You might also consider whether their Credit Card exchange rate should be described with the term you use above and I think you'll find that they don't load a charge for use exUK.

One problem I find with TCs in Thailand is the inordinate amount of time it takes for Banks in Thailand to cash one. It is not as bad as in some banks in Japan where every clerk in the bank has to inspect the instrument with a Jewler's eye glass but they're not far off.

My US bank does not keep large denominations of traveler's checks on hand. But if I go to the bank about a month before I depart, they will order them for me. My bank offes traveler's checks in $US 500 and $ US 1000 if ordered at least a week before they are needed.

The prime reason a travellers check attracts a better exchange rate than cash is to do with the negotiability of the instrument.
Banks work on the principle of clearing foreign items back to their home country. Travellers cheques once cashed are not negotiable, hence safer to transport, and cheaper to insure.
Cash on the other hand needs to be transported by armed security and insurance charges are higher. Also costs of holding it in the bank vault are higher.
Now of course in many banks they can take in foreign currency and then sell it to their customers.
However if you take Thailand as an example I suspect the banks there take in far more foreign currency than they ever sell to their (Thai) customers. Hence they have to send it back, and this is where the costs come in.

I suspect Nationwide do charge if you get cash on a credit card, I don't know for sure as I don't have a credit card from Nationwide. I do have a Debit Card for my flex account with Nationwide and that is great, as detailed on this board several times, it does not incur any charges whatsoever when drawing money out of your account overseas, its brilliant and easy.