Is It Better to Exchange US Dollars in Canada?
Regardless of how you look at it, converting from one currency to another can be a large expense depending on a multitude of different factors. If you’re a Canadian that is travelling to the United States, you can face considerable fees depending on: the frequency of foreign exchange transactions, the amount you want converted, and the currently offered exchange rate. Of course, you’re never fully exempt from currency conversion fees – but there are always ways to save money (hundreds to thousands of dollars annually) by knowing a few tricks. Fortunately, if you’re in the market for a conversion rate that beats the big banks, consider using our online calculator to see how much you could save by using Knightsbridge FX.
WHAT YOU NEED TO KNOW ABOUT EXCHANGING USD/CAD
What is a Foreign Exchange Spread?
In this case the “spread” is what’s known as the difference in price between what a financial institution pays for a currency and what they charge it to you for. From a fundamental business perspective, it operates the same way all goods and services do – produce at a discount, sell at a mark-up. A popular news source might declare that the exchange rate on the day costs X amount, but when you go to the bank the best deal you can truly be offered is X plus a few extra percentage points (which is known as the retail rate of foreign exchange). That slight mark-up is the spread, and that is how financial institutions can afford to profit from their currency exchange services and stay in business.
What are Foreign Exchange Fees?
In some cases, a financial institution will charge you an extra fee in addition to the spread just for using their conversion services. Ultimately, this can have a large impact on your foreign exchange costs if you’re making frequent conversions. General conversion fees can be a flat rate ($3 per conversion) or a percentage based rate (1% of your total converted amount) and occur once per transaction. If you can avoid it, try not to use conversion methods that implement this fee – unless you’ve determined that the convenience is worth the extra cost.
What Currency Transactions Involve Foreign Exchange Fees?
PROFESSIONAL FOREIGN EXCHANGE SERVICES
In most cases, reputable financial institutions that specialize in currency conversions won’t charge you a transaction fee, although it doesn’t hurt to check with them. At the end of the day, this is where you’ll find the cheapest way to exchange currency.
Often when you’re travelling around the world you will encounter these kiosks set up in tourist locations. They’re often slightly predatory in nature (since they take advantage of tourists with no alternative currency conversion methods) and should be avoided if you can help it. Most of the time, they will charge a high transaction fee or feature unfavourable rates.
CREDIT CARD PURCHASES
Depending on the type of credit card you’ve signed up for, it’s possible to waive foreign exchange expenses from your travelling costs. However, if you’re using an average credit card with no currency conversion benefits you will likely be charged a percentage fee.
DEBIT CARD PURCHASES
Assuming you’re still using a Canadian one, you probably won’t be charged with a currency conversion fee (this varies based on your debit cards terms and conditions).
You’ll be hard pressed to find an ATM that doesn’t come with a high foreign exchange fee. Realistically, you should always avoid choosing ATMs for your currency conversion needs unless you have a debit account with cross-border foreign exchange capabilities.
FIVE FOREIGN EXCHANGE TIPS TO KEEP IN MIND IF YOU’RE TRAVELING
#1 Enable Cross-Border Services For Banking
A handful of Canadian financial institutions can provide you with cross-border banking services to help you out if you’re planning to spend some time in the US. Cross-border banking will typically come at varying price points based on your provider, but all offers come with some sort of currency conversion relief. They are most commonly used for regular banking operations, making purchases, and using credit cards abroad.
#2 Pick The Right Credit Card
When it comes to credit cards, it really pays off to sign up for one that is foreign exchange-friendly. The majority of credit cards you can find at home won’t have this feature, since most credit cards come with a percentage transaction fee built-in, so it’s important to seek one out whenever you can.
FX Fee-Exempt Credit
If you’re looking for a getaway abroad and want to save money on conversions, then you should look towards acquiring a zero-FX fee Canadian dollar credit card. Speaking plainly, the convenience of it is hard to beat. It allows you to continue making regular purchases (the same as any other credit card) but you’re exempt from any foreign currency transaction fees. And if you have to pay off monthly credit card balances, you’re able to do so in Canadian dollars.
US Dollar Credit
The other alternative is to register for a US dollar credit card that is offered by a Canadian bank. This type of credit card will also waive your foreign transaction fees, but any transaction you make will automatically use US dollars. This is a very good option if you’ve already accumulated a sizeable amount of US dollars that you don’t need converting.
#3 Explore Big Banking Alternatives
Contrary to popular belief, the traditional Canadian banking system does not offer the best currency conversion rates in the country. Legitimate and respected firms like Knightsbridge FX that specialize in foreign exchange services can afford to give you much better rates simply from operating at a lower business cost.
#4 Stay Away From ATMs!
No matter which way you look at it, ATMs will lose you a ton of money in conversion fees (with very few exceptions to this rule). Not to mention that their exchange rate spread is also significantly high; it’s best to just stay away unless you absolutely need to use it for convenience purposes.
#5 Cost Does Not Equal Convenience
If you’re spending a significant amount of time abroad, you can’t always guarantee the best exchange deal in every transaction. No matter what the exchange rate is for a certain currency you should always consider the relationship between cost and convenience. If time is more important to you than money, there’s nothing wrong with choosing the more convenient alternative.
FINAL THOUGHTS: CHEAPEST WAY TO EXCHANGE CURRENCY?
Navigating through options to find a cheap currency conversion method is not an impossible task. Usually, if you’re willing to sacrifice a practically negligible amount of convenience, you can find very affordable options for foreign exchange. With over 70,000 satisfied customers and a best rate guarantee, Knightsbridge FX offers exceptional currency conversion.
If you’re a Canadian snowbird that’s planning on living in the US permanently, read our guide to moving to the US from Canada for some helpful advice.