Question: During a *pidyon haben* (redemption of 1st born son) the father gives the Cohen 5 silver shekels (or equivalent value.)

I'm not sure how much 5 silver shekel is worth in today's U.S. funds. But silver values are rising. I assume the Cohen can keep this money and do what he wishes, or must he use it only for holy purposes? What do Cohanim typically do with the money? Are they allowed to and do they ever return the money to the father?

Answer: 
In my experience (having being the *Cohen* receiving the *pidyon haben* money), a *Cohen* who does many *pidyonei banim* will often own his own set of 5 silver *shekalim* (I do not, but was gifted a set by someone to whom I later regifted it). The *Cohen* will then sell the silver coins to the father for an agreed upon amount of money, and the father will then use these coins to give to the *Cohen*. Thus, in this process, the money that was exchanged in the final accounting was for non-holy items (*ie.* for the silver coins not in the context of a *pidyon haben*), and so whatever the *Cohen* wants to do with this money, he may.

**Sources:** my own experience, other more experienced *Cohanim*, what (Modern Orthodox) Rabbis have told me to do.
The answer is from my own experience as a bechor. :) Or at least what i've been told about it...

When i was born (<20 years ago) my parents used 5 silver dollar coins for the pidyon, in accordance with common practice (and i suppose what their rabbi said).  

The kohen returned the money to us as a gift later (which my parents then gifted to me). I am told that this is actually pretty common. From here we can see that the money doesn't have to be used for holy purposes, and can be (and is!) returned to the father afterwards. Note that SA Yoreh Deah 305:8 rules that while it is permissible to return the money, it's not recommended.