Cheapest Way to Exchange Currency in Toronto

So you have come to the point where you need to exchange currency. Whether you are buying US real estate, paying international tuition, moving overseas, or need to bring funds back into Canada, you will need to exchange currency…and you’re looking to do it the cheapest way without any fees.

The cheapest way to exchange currency in Toronto is to use a currency specialist such as Knightsbridge Foreign Exchange…but let’s start with a look at the banks as this would be a starting point for most people.

Canadian Banks
The most common starting point for anyone looking to exchange currency is their bank. The banks are a natural starting point. You have your accounts with them and most likely your money is already in your bank account, so it only makes sense to think of your bank first for currency exchange. That is until you take a look at their exchange rates.

Banks in Canada offer Canadian and US dollar accounts and most people naturally exchange funds with their bank between these accounts. It is simple, it can often be done online, and its quick. The problem, however, is that the fees are excessive and it is not cheap!

When you start to look at your banks exchange rates, you will realize that they are not cheap. In fact, you will realize the banks are quite expensive. The exchange rates they offer have a huge built in margin, which is essentially the exchange rate fee. This fee can be up to 2.5% and its hidden within the exchange rate you see.

Therefore, the rate you see on TV or the internet or on the radio, is not even close to what you get when you ask your bank for their exchange rate. There are a couple of reasons for this.

Banks Have an Oligopoly
Firstly, the banks pretty much have a oligopoly on the currency exchange market for most individuals and businesses. Think about it, with over 95% of Canadians that use their bank for currency exchange, why would the banks need to compete on price?

Since the banks have all the marketshare and Canadians don’t know of alternatives to their bank, Canadians will pretty much accept whatever exchange rate the Canadian banks will offer them.

Banks Have High Overhead
Secondly, the banks have high overhead costs. They have a big bulky branch, and huge layers of people from the teller level to middle management. The banks were not built solely for currency exchange – they actually do a number of things such as mortgages, chequeing accounts, lending, storing money, etc. Therefore, the cost of a bank processing a currency exchange transaction is expensive. This is another reason why the banks are not cheap for currency exchange.

How to Compare Exchange Rates
A simple way to look at the cost of exchanging currency at a bank is to look at their exchange rate. Simply, call up your bank and ask them for their exchange rate to buy US dollars. You can compare this rate to the rate you would hear on the radio or see on TV (interbank rate). The difference between these numbers is the currency exchange spread.

Our analysis has shown that banks will charge about 2% to 3% spread on currency exchange for Canadians. We have called the banks and have checked their exchange rates regularly.

Here is a table that outlines the Canadian bank exchange rates and the spread charged to Canadians.

Bank Spread %
Royal Bank of Canada (RBC) 2.6%
TD Bank 2.6%
Scotia Bank 2.8%
Bank of Montreal (BMO) 2.6%
CIBC 3.3%
Desjardins 2.5%
HSBC 2.1%

A currency exchange specialist should be able to get your transaction done from 0.75% to 0.1% depending on the size of your transaction. The larger your transaction, the better your exchange rate.

Currency Exchange Tips to get the Cheapest Exchange Rate
One of the natural tips for exchanging currency is to aggregate your transaction and to exchange currency in bulk. For example, if you need to buy US dollars of $50,000 over a year, instead of buying US dollars at $10,000 each, you can buy it one time at US$50,000.

If you are a student that is paying international tuition in installments, you know how much currency you will need over the year. While paying in installments will help your cash flow situation, if you buy in bulk you will get a better exchange rate than if you buy it in small amounts over time. The same goes for a Canadian buying US real estate and paying monthly maintenance costs, it actually might make more sense to buy currency in bulk upfront and then pay it down over time, instead of exchanging currency in small amounts more frequently.

The larger your transaction the better the rate, therefore it makes it cheaper to buy currency the larger your transaction.

The biggest mistake one can make is to simply assume your bank is the cheapest way to exchange money. They are not. In fact, they rely on you assuming they are cheap. But they have a huge markup.

Another good way to find the cheapest way to exchange currency in Saint-Georges and Toronto, is to simply call your bank and get a rate. Compare this exchange rate to a currency exchange specialist, like Knightsbridge Foreign Exchange, and see the difference.

You can get a free, no-obligation, exchange rate comparison quote by calling 1-877-355-5239.