Saving Money On Currency Conversion

Saving money on currency conversionsTravel can be expensive and one of the extra costs is currency conversion. When you pay for purchases in a foreign currency there is almost always an extra cost involved. If you are travelling for a long time or spend a lot of money when travelling, your costs can be significant. Whenever I travel I always try to think ahead about how I can save costs on converting my money. I tend to avoid converting cash at the big banks because they are usually more money and I avoid converting currency at an airport because it’s the most expensive option.

Cheapest Exchange Options

Here is a quick guide to the cheapest ways to convert cash (beginning with the cheapest and ending with the most expensive option).

  1. Credit card (with no foreign exchange fee)
  2. Currency exchange business (such as Calforex)
  3. Credit card (with 2.5% foreign exchange fee) or debit card
  4. Transfer in person at a big bank
  5. Currency exchange at an airport

Related: US Bank Account Comparison For Canadians

Online Purchases

When making purchases online from a US-based store, you’ll most likely be charged in USD. Since most people pay using their credit card, this means there is an extra surcharge the credit card company charges to make the currency conversion. Most credit card companies charge an extra 2.5% for any foreign exchange transactions. This means you’ll pay an extra 2.5% on everything you buy using your credit card for foreign currency transactions.

Keep reading on how you can find a credit card that doesn’t charge a foreign conversion fee.

Using A Credit Card When Travelling

One drawback of making transactions in foreign currencies is that you could potentially lose money even if you return the item. The transaction gets converted when it is posted by the credit card company using the exchange rate at that date. If you return the item at a later date the refund will be processed using the exchange rate on that date which could mean a difference from when the original purchase was made. This means you could lose money on the foreign exchange difference.

The most obvious way to get around this is to request that the transaction is processed in Canadian dollars. However the drawback with this strategy is that Canadian credit card companies are required to only charge an additional fee outlined in the credit card agreement. If you request the transaction be processed in Canadian dollars you could potentially end up paying even more because foreign merchants are able to charge more money for the conversion and aren’t governed by Canadian laws.

When in doubt, most travel experts agree that credit card transactions in a foreign country should be done using the foreign currency. It means you will pay an additional fee (if your credit card charges one) but your fees will be limited as outlined in the credit card agreement.

Credit Cards With No Foreign Conversion Fee

Luckily there are a few good credit cards available that waive the currency conversion fee. Here are a couple options:

  • Amazon Rewards Visa. This card allows you to get 2% cash back for every $1 spent on Amazon.ca and 1% cash back for every $1 spent everywhere else. It has no annual fee and also comes with a $20 Amazon.ca gift certificate when approved.
  • Chase Marriott Rewards Premier Visa. This is a travel rewards card that gives 30,000 bonus points after the first purchase that can be redeemed for 4 free nights at a Marriott hotel. Card holder also get a free night stay on their card anniversary date (valid for 6 months after). Card holders earn 5 points for every $1 spent at a Marriott hotel, 2 points for every $1 spent on airfare and 1 point for every $1 spent everywhere else. The biggest drawback of the card is the annual fee of $120 (waived for the first year). If you don’t travel much or stay in Marriott hotels often this likely isn’t the best card for you.

For most people who travel occasionally the Amazon Rewards Visa is likely the best credit card to use when travelling. It has no annual fee and you’ll save on all foreign transactions because they waive the currency conversion fee. Also, 1% cash back on all purchases can really start to add up.

Related: Best No-Fee Cash Back Credit Cards In Canada (2015)

Other Credit Card Options

If you’re not interested in a rewards card, you can also pick up a U.S. Dollar credit card from most major banks.

For example, most banks offer a US dollar Visa/Mastercard which doesn’t charge a currency conversion fee. All US purchases are billed and paid in US dollars. The big drawback of these cards is that they have an annual fee (usually around $35 USD) and they also require a US dollar bank account to pay for the US transactions, and these bank accounts also have monthly fees.

However, it may be an option for anyone who already has multiple products with one bank since most banks will consider waiving both the annual fee and bank fees for long time customers.

Here is a quick summary of the annual fees for each major bank’s US dollar credit card:

  • TD Canada Trust - $39 USD
  • BMO - $35 USD
  • CIBC - $35 USD
  • Royal Bank - $65 USD
  • Scotiabank - $35 USD

Currency Conversion When Travelling

If you don’t have access to a credit card with no foreign currency conversion fee, you’ll want to exchange some cash.

The second best option is to use a foreign currency exchange business. In my experience currency exchange places like Calforex tend to give slightly better rates than the big banks. This is because they charge a transaction fee and a slightly better rate, whereas the big banks don’t have a transaction fee but also charge a higher rate. If you’re travelling for a long time and have a lot of currency to convert you may want to consider converting large amounts at once rather than smaller amounts more frequently to keep transaction costs low.

Avoid Getting Ripped Off

Here are some of the most expensive currency conversion methods to avoid:

  • Currency exchange at an airport. Virtually all major airports offer currency exchange services and the convenience of being located at an airport comes at a cost. Be prepared to spend almost 10% more converting cash at an airport than using a credit card with no currency conversion fee (the cheapest option).
  • Converting at a big bank. The big banks all offer currency conversion and they also charge some of the highest rates. This option is about 3-5% higher than using a credit card with no currency conversion fee.
  • Using a debit card. If you pay for foreign currency transactions using your debit card you will pay using the bank’s rate and they will also charge a conversion fee. This should be avoided unless it’s necessary.

A Note On Norbert’s Gambit

A simple method to save money on U.S. currency conversions involves using an exchange-traded fund (ETF) that tracks the currency - this method is called Norbert’s Gambit. It is popular with investors but can also be used by anyone looking to convert some cash at a low cost.

Norbert’s Gambit can be accomplished in 3 simple steps. The first step is to buy some of the Horizons US Dollar ETF (trading under the symbol “DLR”). It’s important that you buy the Canadian version (DLR.TO) when converting from Canadian to American currency. The next step is to transfer (journal) the shares over to the American version, DLR.U. If you use a low cost brokerage like Questrade, this can usually be done by emailing them a request (at no charge). The final step is to sell the shares of DLR.U - once this happens you’ll have the proceeds in American dollars which you’ll need to transfer to a US Dollar bank account to withdraw as cash.

One potential drawback of this method is that you’ll need to wait a while after the initial trade settles before requesting the shares to be journalled over (typically 2-4 days) during which time the exchange rate could fluctuate.

Conclusion

The cheapest way to convert currency is to use a credit card that doesn’t charge a foreign currency conversion fee. If this isn’t feasible, you’ll want to visit a foreign exchange conversion business like Calforex before departing so you can avoid having to convert currency at the airport. You’ll also want to avoid converting currency at a big bank since they also tend to charge higher rates.

Disclosure: Some links in this article may be affiliate links. We're letting you know because it's the right thing to do. Here’s a more detailed disclosure on how HTS makes money.

Comments

gcai
gcai's picture

further note on Norbert's Gambit - you are not restricted to DLR - any stock that in interlisted on US and Canadian exchanges will do eg. BCE, RY, BNS etc. - same process but depending on broker you get (usually the brighter ones) to do the journaling they may let you trade the offset trade immediately rather than waiting for settlement.

November 17, 2015 @ 4:15 pm
Stephen Weyman
Stephen Weyman's picture

That's a good point gcai. I think Dan just mentioned a specific ticker to make it more actionable for people who wanted to do it. I've never done Norbert's Gambit myself, but I thought it was possible to do with any stock that was listed on both exchanges. Thanks for confirming this for me.

November 18, 2015 @ 8:41 am
D a n's picture

Hi gcai, good point - I discussed DLR specifically because it tracks the currency. For journalling I use Questrade and usually have to wait a couple days, but it may be different with different brokers

November 18, 2015 @ 3:07 pm
gib
gib's picture

We need to convert our Canadian funds to American because we are moving to the US in the near future. Any recommendations on the best way to convert our funds, a bigger amount than just for travel?
thanks!

November 17, 2015 @ 5:36 pm
Stephen Weyman
Stephen Weyman's picture

I'll wait for Dan to chime in on this one gib. I'll let him know you've left a comment.

November 18, 2015 @ 8:41 am
D a n's picture

Hi gib, it would depend on the amount you want to convert. For cash amounts below $10k I'd suggest looking into Calforex as their rates are very competitive. For amounts higher than $10k I'd suggest Knightsbridge FX. I haven't used them personally but have heard others getting very good rates but I believe the minimum is $10k. I'd also consider the timing of the exchanges as the exchange rates are not great right now and if you could hold out for a couple years they may improve. Either way I would avoid airport currency exchanges and big banks. Hope that helps!

November 18, 2015 @ 3:13 pm
gib
gib's picture

Thanks Dan.
I will look into this suggestion.
Unfortunately we can't really put a hold on this move but we can wait as long as we can to get the best exchange rate.
Thanks for taking the time to reply!

November 19, 2015 @ 2:43 pm
Mary
Mary's picture

Gib, I am going to be in a similar situation soon and keep watching the CDN $ rising & rising.....hope we can both find an answer.

November 17, 2015 @ 6:10 pm
Charles
Charles's picture

Rogers Platinum Mastercard has no foreign exchange fee.

November 17, 2015 @ 8:09 pm
Stephen Weyman
Stephen Weyman's picture

Yes, there are a few others Charles. I believe they are all backed by Chase bank. Sears MasterCard was another until just a few days ago when they discontinued that card. I think there is one more too that I'm having a hard time remembering right now.

November 18, 2015 @ 8:39 am
Justin Barracosa's picture

Another note on Norbert's Gambit:
You referred to currency fluctuation and subsequent fund loss as a "potential drawback". However one must remember that there is also the EXACT SAME CHANCE ( except when there isn't), that one will gain on the fluctuation during that period. Lol

I have never purchased an ETF before but I do have a question. With Questrade, there is no fee to purchase ETFs but there is I believe a $5 USD fee to sell.

My question is: can the investor set limit orders for ETFs for either or both the buy and/or sell side?

If so, and one leaves oneself enough time, the chances of lost funds will be ALWAYS BE mitigated ( except of course, when there are not). Hehe I just love using that Lol.

November 18, 2015 @ 9:35 am
Stephen Weyman
Stephen Weyman's picture

Yes, of course, you could end up positive and make money on the deal, which is definitely a posibility.

In terms of Questrade, I have been a client since 2008, and yes you can set limits on your ETF purchases just like any other stock. Yes, there is no fee to buy (most maybe all) ETFs with Questrade. You do pay 1 cent per share with a $5 minimum when you sell (plus exchange fees, which are usually quite small).

The problem with setting limits though is if your limit never gets hit you could find yourself further and further in the hole. Most currency conversions are transactions that need to be completed quickly, so using a limit is probably not the best idea.

November 18, 2015 @ 12:15 pm
D a n's picture

Hi Justin, I haven't set limit orders for exchanging currency for reasons noted above by Stephen but I do know it's possible

November 18, 2015 @ 3:16 pm
Nadine
Nadine's picture

For those of you looking for a no fee USD bank account, CIBC offers one. I have had my account for just under six years and haven't paid any baking fees.

December 13, 2015 @ 11:46 pm
Nadine
Nadine's picture

Curious, if one were looking to convert USD to Cdn funds, would the recommendation still be Calforex or Knightsbridge?

December 14, 2015 @ 7:40 am
James
James 's picture

For cash/currency exchange In Ontario try "Continental"

- I found them very good. I also used a TD Gold Elite card & was able to debit with no service charge. I've been with TD for a long, long time now & may have been offered this as an incentive to get the card (b/c now I don't see that as listed as a perk). If you have a bank you've been dealing with for a long time (& have mortgage/investments) I believe it would serve you well to talk to them to see if they can't waive the service fee (for either debit or credit purchases). Just be sure to call them before you depart.

December 19, 2015 @ 8:47 pm
NRah
NRah's picture

Hi Stephen - thank you! I find your site extremely helpful! I live in Toronto and considering exchanging $20k USD to CAD. I bank with TD, do you have recommendations on where I do the exchange as I understand doing so in banks can be expensive. Thank much!

October 15, 2017 @ 10:48 pm
Keith Richmond
Keith Richmond's picture

Hi Stephen,

You may wish to update some of the info here. Amazon VISA is no longer being distributed (although I called their support line and they said existing card will continued to be honoured and have the same benefits, including foreign exchange - it will just be managed by Scotia Bank). You may wish to add Home Trust Preferred Visa to this list, as they also offer to adjustment to their foreign exchange plus 1% cash back and no annual fee.

Tech Guy in BC

January 05, 2018 @ 4:41 pm

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