Are you talking about a bank deposit, bank transfer, or actual paper currency? What is the source of your dollars of each kind, why are you going back and forth?

Bossy...hello, thank you, I really hate those bank fees

elmer...hello, I'm looking mainly to change actual Canadian cash $ to USA or vice versa. We travel a lot between both countries and it would be nice to avoid the 2.5% fee charged by the Feds to do this transaction.

On what side are your income and wealth balances located? You should try to avoid more than one conversion and convert only an excess of funds you don't want in the other currency and that you ultimately won't spend in the other currency. Open a bank account to hold what isn't immediately spent.

What "Feds" are you talking about? The US government plays no role in currency conversion.

Hi Elmer...it's mainly for travel purposes and usually a small amount. My daughter has a USA student loan but she now lives in Canada and earns our lowly $... so every time she wants to convert 500.00, the bank of Canada, (Feds) charges 2.5% fee just to do this and some banks add % over this.

Of course, the loan payments are monthly and she has no way of saving for the entire loan so she can pay it off in one lump sum. (Its way too much).

i guess what I'm talking about is the Foreign exchange fee.

If it's a central bank charge, there may be no options. Try asking your bank or better yet a financial advisor to see if there are alternatives.

2.5% is 2.5%, whether on one month's worth of $500 or on 6 months worth at one time of $3000, right? I understand that an extra $10-$15 per month adds up for someone with limited income but as you say, the current exchange rate (bad for you, good for us) is really what's costing the big bucks.

Good luck

For actual currency, don't use banks, instead use a debit or credit card, from a bank that has no international transaction fees, in the country you are visiting. I used a Charles Schwab checking account that allowed me to withdraw money from an ATM internationally for no fees (they refund all ATM fees).

For paying U.S. bills from Canada there are several banks that offer low or no fee international currency transactions. I think Bank of America still does this and I know that several Canadian banks will do this. When they have fees they are usually a flat fee around $2.50 per transaction. So that is probably less than what you are currently paying. Also, the student loan company may accept credit cards (this is usually an exception to their published rules only used for making minimum payments in unusual circumstances, but many of them will do this). Any credit card with no foreign transaction fees would then allow you to pay the bill without a fee.

Edit: there are other options too, such as having an authorized user in the country that pays the bills, multi-currency accounts (although these usually have fees associated with them), hawalas (I wouldn't recommend this one either, as it is often used to launder money).

PG is suggesting that Canadian dollar conversion goes through the central bank and that's where the charge is. Maybe so. I've been to Canada many times but I have no insight about foreign exchange from the Canadian side of the border.

bry, do you have knowledge of how it works in Canada or are you just guessing?

I know what you were saying about trying other means of payment but to be clear, using a debit card or a credit card IS still using a bank. If there's central bank involvement with foreign currency transactions, that may not make a difference.

I haven't traveled to Canada in a bit but they are still bound by the exchange master agreement so Canada's central bank doesn't handle currency exchanges.

I assume that PG is talking about the price premium for the consumer exchange rate vs. the mid-market rate. The consumer rate is much higher.

If you bank at a bank that has branches in both countries or use certain credit/debit cards you can take advantage of the mid-market rate.

Find another traveler who goes back and forth and sell/exchange with them. Or put the CAD$ in a drawer until the next time someone heads north.

Hello bry and Elmer....thank you so much for your input....

just to clarify, the bank of Canada..charges 2.5% to all banks or even currency exchange companies. This is passed down to the consumer..further some banks charge an additional fee over and above the 2.5%

however, I will check credit card companies here in Canada, and see if the student loan company will accept credit card payments...,The issue, is that the student loans have interest 5.3% and this is added to the bank of Canada foreign exchange rate...2.5%. So this adds up fast....

hi JMC...I wish I knew someone living in the USA and visits Canada often, the reverse is mostly true..,snowbirds fly south. And this explains why the Canadian financial institutions can get away with Foreign Currency Fees.

I have deleted my previous message b/c it was confused.

If I go overseas and use the ATM to get local currency, I get charged a $3 fee by Chase. This is not the same as exchange rate.

If I go to the local bank in USA where I live, to cash or deposit a check issued in a foreign currency, Chase does not charge a fee.

I was trying to ask in a separate thread whether there was a strategy for making exchange loss a little less painful, specifically, Canadian to US, but not with the kind of money I handle. If one have gazillion$, then there are strategies, but for me, a mere mortal, nothing worth the trouble.

Here is the reasoning behind Foreign Exhange Rates...it's always about money...Unlike the United States, where credit card issuers are increasingly abandoning foreign transaction fees altogether, FX fees represent too large a part of a Canadian credit card company’s income stream to walk away from. The fact is, Canadians travel out of country a lot more often than Americans travel out of the United States, so it’s easier for an American issuer to give up on FX fees than for a Canadian issuer.For a quick proxy, 30% of Americans have a passport, compared to 70% of Canadians, a good indication of foreign travel. Moreover, Canadian banks make a healthy profit from foreign exchange services from their retail customers, where they charge a 1% to 3% fx surcharge when exchanging Canadian dollars. It’s doubtful the banks will want to offer Canadians a free alternative that will cannibalize their retail fx business.

@bossy...yup us lowly folk seem, to be hit as usual, lol..

Hi PG, I do a fair amount of travel around the world for business and personal. The way I do it is that I will just take out cash at the atm at the airport. Of course, you have to speak to your bank or do your own research on which bank offer this service. My bank will not charge me any atm fee or exchange fee. They also use the spot fx rate as the exchange rate.

i also use the credit card which does not post any transaction fees. There are many that offer such perks.

Hi shp..thank you, unfortunately the same is not true in Canada.

just to clarify, the bank of Canada..charges 2.5% to all banks or even currency exchange companies

I can't find any evidence that the Bank of Canada is charging you more, it is the same consumer indirect spot rate I would get here if I went to the bank and got Canadian dollars (which is usually about 2.5% off of the spot rate). This rate drops as you buy more - .5% for 5,000 CAD at FX markets down to .04% at 200,000 CAD.

Hello Elmer...bry...just to be clear, the Foreign Exchange Rate of 2.5% is charged by the Federal BANK of CANADA. So no matter what, we pay this through our financial institutions, when we want to buy the good old Green Back $. Some banks will also charge another % over and above 2.5%.... in addition, so do credit card companies. I believe their are 2 exceptions.

From my brief research, most USA banks or financial institutions do not charge additional fees to convert monies, other than the exchange rate.

So the only way to not pay this could be, if we knew someone who earns USA $ and is willing to just convert the money based on current exchange rate. Most people we know, keep their USA $, cause we never know how low ours will go. (It's hard to believe at one point, it was equal. )

Only in Canada EH! Lol...

PG, what you said was perfectly clear to me the first time. I don't make up answers or use online searches if the subject matter is unfamiliar.

Every US bank that handles foreign exchange makes big money from it. Fees are typically buried as an element of the conversion rate and in addition, banks work buy and sell rate differences to their advantage. To say "no fee is charged" is to say no fixed rate fee is disclosed to the customer.

Don't confuse dust-sized individual transactions with mountain sized commercial ones, the costs as a percentage are likely higher on the tiny ones. The vast majority of large transactions are bank transfers through clearing houses like SWIFT and don't involve the delivery of actual paper currency so the real costs of the transactions are low. Lastly, trading volume in US dollars versus other currencies is huge, with the Canadian dollar much, much less so. The volume alone reduces the cost of transactions to the banks concerned, because their net transactions are large and get better rates.

Hi again Elmer....what you are saying about transactions is so true. In addition, I was caught off guard by my banks statement that there is no fee to change currencies. In fact, 2 different branches reassured me of this. Then after long discussions and my challenging them, the matter was looked into further. Guess what, Yes, I was sheepishly told, the bank doesn't charge but the CEntral Bank Does, and this is added to or included in the exchange rate of the day, Very well hidden and somewhat devious, says I.

Thank you so much for your time.

PG - I think you are
misunderstanding what happens so I am going to make a fairly long post to
explain why I believe you are misunderstanding. Many very smart people
don't understand floating currency systems.

I
actually have a ForEx account, and so every day I spend about an hour looking
over world events and deciding if I want to bid or ask anything (honestly I
usually do Forward Contracts but let’s not get into that). The market for
currency is little different than the market for any other perfectly
substitutable product. If I want to sell some U.S. currency I put a price
on it and put it out on the market to see if anyone is willing to buy it at
that price. If I want to purchase currency I make an offer called a bid
and put it out there to see if anyone is willing to sell at that price. When
the trade is done the broker takes a small part off and gives me the rest. In the real market, there are actually two current
“quoted rates” – the prevailing bid price and the prevailing ask price, and a "published average" between the two (this is the price you see).

Here
is an example of how the market works -- Suppose I have $2,000 USD in my
account. If I go today and trade $1,000 USD for Canadian dollars at 1.30,
my account will then have 1,000 USD and 1,300 CAD. If I then cash out my account they will send
my bank 1,000 USD and 1,300 CAD, and since I have a multi-currency account I
can spend the USD in the US without a penalty and the CAD in Canada without a
penalty. On the other side of the transaction someone with CAD just
traded me their CAD for my USD, and they get slightly less than $1,000 USD
(because their buy price wouldn’t have been the same as my sell price).
There is no Central Bank involved...

The
very basis of the currency market is that there is no central figure. Central banks do not control the
transactions. If they did, it wouldn't be a floating currency. No
one would buy or sell Canadian dollars if the Central Bank added a fee. I
understand what PG is saying but I strongly suspect it is a misunderstanding of
the way the market works. This fee would
be a serious trade barrier that I suspect would be in violation of NAFTA. Personally,
this is a litmus test on the subject,
anyone who would accept without question that the Bank of Canada is adding 2.5%
to ForEx transactions probably doesn’t understand the subject, which is OK so
long as they don’t denigrate the people who do understand.

A
very simplified example of what really happens when you pay a U.S. bill.
For this example let's assume that your bank doesn't commonly deal in USD
and so doesn't buy currency in bulk. Let's say you need to pay a 500 USD
bill with CAD. The bank goes to the ForEx and makes a bid for 500 USD.
Assume the bid spot rate after the spread for the day is .77, no one is
going to snap up a 500 bid, so your bank gives a bit extra and offers .76 and
you end up paying 658 CAD instead of 650 CAD. Now your account has 500
USD which can be transferred to the US bank.
Today you wouldn’t have to pay that much premium but you may have to pay
a little. Still, no one gets the published “exchange
rate” really. The more money you’re
transferring the closer you can get but you will still not get it. There is no exchange rate in a floating
currency. There is just the average
between the prevailing bid and ask prices. The brokerage always takes a small cut called the spread, which are usually expressed in units called pips.

Please note: in these
examples you don’t have the currency only the electronic 1’s and 0’s. If you actually want physical currency there
will be a charge to ship that to you.

PG -

I had to make a couple of phone calls to be sure but I think there is a solution.

TD bank allows you to have a USD account and a CAD account (although apparently not one account that has both). You can open a USD account and use one of the reputable online exchanges to eliminate most of the spread. I have seen online exchanges with pips less than 1/100th of banks. In this case you will put CAD into your exchange account, spot trade at a more favorable rate and have the funds deposited into your USD account.

Now I will note, that if you are doing one or two things a month that add up to a couple of hundred dollars you may actually lose money doing this (the account has a small monthly fee), but if you are spending significant amounts in the U.S. you will see some savings.

NAFTA violation eh? How about the FCPA and the Voting Rights Act of 1964? You're a trade lawyer too?

If a Canadian says there's a Central Bank charge, then that's what there is.

Hi Elmer and bry....the bottom line is, there is a feee to exchange the $. The banks say it's because the Central bank charges the fee and its passed down to the lowly traveller. To ascertain this call a credit card co. Such as capital one.or royal bank and ask the following question. If I buy USA $ and immediately sell it back to you.,,will I end up,with my original amount.... currently the royal bank rate will buy and sell USA $ as follows...1.2974. 1.3778

Hope this helps...take care....!

To ascertain this call a credit card co. Such as capital one.or royal bank and ask the following question. If I buy USA $ and immediately sell it back to you.,,will I end up,with my original amount.

No, of course not. That is called the spread. Everyone who runs an exchange charges you a fee to use their resources to get in touch with other people looking to sell currency. To say that everyone adds these fees, is absolutely correct but to think that everyone in your country adds the same fees is not correct. Here are data from two exchanges.

In the above example the exchange charges you 4 pips (1.3476-1.3472). Banks typically will charge more pips than this. They do this because they can, not enough people move to alternate methods of currency exchange to make banks want to drop the high spread they use (yours apparently uses an 804 pip spread (1.3778-1.2974) - which is pretty high, my bank charges 132 pips, but adds a $24 fee if I actually want the currency.

You can try to remove your bank from the deal and open your own FX account which can get very low spreads. However, there are fees with having dual currency accounts and your exchange trades will have minimums. Last I looked MBT had a $1,000 trade minimum but I am not sure how their cash out procedures work.

All of the things that I said above can help minimize your actual cost. Every piece of advice that I gave you above will help you reduce the cost of using your money in a foreign country. But only informal currency exchanges will eliminate it. Even hawalas will charge you a fee.

Intervention in the Foreign Exchange Market

Edit: PG - I didn't mean to be confrontational with you and I don't want to imply that you did anything wrong. In fact, I think you were probably told exactly what you relayed to us, so I probably shouldn't have said that you were mistaken, rather that the person who told you this was mistaken. ForEx's are easy to misunderstand and sometimes banks don't do the greatest job preparing their customer service people for more difficult questions.

For people, who understand currency exchanges what you are saying seems preposterous. I would find Canada declaring war on the U.S. only slightly more preposterous. I initially ignored it, as I gave advice to minimize the expense which really doesn't require an understanding of the system. As your question became more refined I tried to refine my advice and add some understanding.

Hi bry...wow, you sure have gone way and beyond in your research, thank you for the explanations, advice and the information, very helpful. So true re informal currency exchanges and most Canadians hold onto any USA $ they have. Sheesh, do I miss the days when it was at par...

"For people, who understand currency exchanges what you are saying seems preposterous."

I think I better understand and have more practical experience with foreign currency exchange and international business at small and very large levels than most and I find what what PG has said about the situation in Canada to be completely understandable and unsurprising. There was a history of central bank exchange control and currency management in the British Commonwealth to a greater extent than elsewhere and vestiges of it linger here and there.

Hi bry and Elmer...thank you for all the info and advice. I just called Wells Fargo, they said they will buy and convert my CDN currency at .70cents. My CIBC will do it for .72cents on the dollar, CIBC says they are simply passing on the bank of Canada fee. I'm only trying to exchange a small amount I.e. 500.00 month, so the daughter can pay off her USA student loan.

Anyway, it is what it is...hope you had an awesome thanksgiving. The other daughter, spent it in Iowa, with her in laws, had lots of fun and good eats....

CIBC says they are simply passing on the bank of Canada fee.

The information I posted above came from the bank of Canada. I emailed the public information department of the bank of Canada and they informed me that they don't involve themselves in any matters of public banking including exchanges, nor do they levy any fees on exchanges, the full extent of their role is provided in the information. I can't tell you why your bank is lying to you but they are. Feel free to email them yourself, most central banks are pretty good at responding.

General Enquiries

info@bankofcanada.ca

I find this message of the Bank of Canada charging a fee of 2.5% somewhat unusual ... questionable.

I'll do some checking.

ole joyful

Hello bry....amazing...the myth then of our central bank and charging all banks, credit cards 2.5% is certainly perpetuated up here. And quite frustrating....thank you for your research

I find this all very interesting since I travel often enough and hate paying those conversion fees. I'm in the USA, and am planning a long visit to Canada as my first retirement trip. Since all my credit cards charge a 3% conversion fee, I have an all cash system when I go to Europe. My first stop at the airport is the bank ATM, which does not charge any type of fees. Some countries it's illegal. I use a Capital One Money Market account, which also does not charge a fee. So, I make sure it's loaded up with money before I go on vacation and use ATMs when necessary to pay for hotels, trains, meals, etc. IMO, banks have enough money. Hoping my system works when I travel to Canada. I don't know what ATM fee rules are there, though. I will have to do some research.

FWIW - My Capitol One VISA doesn't charge a fee for foreign transactions, just exchange rate in effect at the time of processing.

My first stop at the airport is the bank ATM, which does not charge any type of fees. Some countries it's illegal. I use a Capital One Money Market account, which also does not charge a fee.

If you are getting foreign currency out of an ATM there is a fee, if you are getting U.S. money out there probably isn't. Hidden on all of these exchanges is the spread (aka the bid-ask spread). Go to the ATM at the airport when you are leaving Canada and get money, then immediately turn it back in to your bank for US currency. The amount they took out will be more than you get back even without transaction fees.

FWIW - My Capitol One VISA doesn't charge a foreign exchange rate.

I don't understand what you are saying here.

The market for currency works just like any other market. So instead of thinking of buying and selling money let's think about buying and selling apples. Suppose you are an apple grower and you sell your apples to the market for $1.00 each. Later you realize that you sold too many and return to the market to buy apples. However, the market is selling those apples for $1.10 because the market has to make money to pay it's overhead.

Many people mistakenly believe that exchange rates are fixed, at any time you can trade one currency for an equivalent amount of another currency, but they are not, currencies are commodities. Just like apples, there are people buying currencies and people selling currencies and the market takes its cut every time. Some banks have a lower spread than others but everyone has a spread.

Hi everyone, I haven't looked at this thread in awhile, and am glad that folk are finding it useful or informative. To those traveling, it will be interesting to hear your experiences.

jrb. I was given the same info by capital one visa. I have yet to test it out. However, Canada capital one MasterCard, told me they do charge (I think3%)to exchange currency.

Interesting that capital one USA, doesn't charge the fees but cap one in Canada does. ):

I believe it has to NOT be a 360 card. Just a plain ol' Capital One card. Have you checked around?

If there is no Capital One card with free international transactions for you, then it probably is a Canada specific problem...

The following perhaps explains the reasons for FX fees in canada

Unlike the United States, where credit card issuers are increasingly abandoning foreign transaction fees altogether, FX fees represent too large a part of a Canadian credit card company’s income stream to walk away from. The fact is, Canadians travel out of country a lot more often than Americans travel out of the United States, so it’s easier for an American issuer to give up on FX fees than for a Canadian issuer. It’s doubtful the banks will want to offer Canadians a free alternative that will cannibalize their retail fx business.

This article notes that there are 2 Canadian credit card companies that do not charg FX fees.

I hate this too, but I didn't find a way to avoid the fees. I just switched to a credit card that I can use internationally, and it's much more convenient.