With the Canadian dollar (CAD) again making an aggressive move towards parity with the U.S Dollar (USD), deal seeking Canadians are probably looking to pick up some of the cheap greenback.  One hurdle though when purchasing USD are the fees involved.

As someone who likes to minimize fees, I went on the search for some low cost ways to exchange currency.

Interactive Brokers

As I have an account with IB, I can attest for their extremely low prices for both stock trading and currency exchange.  While most discount brokers charge 1%-1.5% per exchange, Interactive Brokers charges:

1 basis point (0.01%) + $2.50 USD.

However, there are some drawbacks of using IB as your primary currency conversion tool.  First, you need an account with them which costs a minimum of $120/year (USD).  Secondly, if you want the money in a reasonable amount of time, the money must be first “wired” to IB ($30 charge at most banks).  After that, you can do the currency exchange, then EFT the money back to your USD bank account.

Otherwise, if you EFT the money from a CAD bank account into the IB account, since it will be withdrawn into a different account (USD bank account), they will hold the money for 60 days.

I can see this option being a great solution for existing IB account holders AND if you are exchanging fairly large quantities to make up for the $30 wire transfer fee.

To put this in perspective, here is the cost of exchanging various amounts of Canadian Dollars:

  • $500: $33.05 (assume $2.50 USD = $3 CAD)
  • $1,000: $33.10
  • $2,000: $33.20
  • $4,000: $33.40
  • $5,000: $33.50
  • $10,000: $34.00

Other Discount Brokerages

Discount brokers like Questrade typically charge 1%-1.5% on currency exchanges (one way) on top of the spot rate.  In order for this to work, you’ll need a non-registered CAD and USD trading account with a discount brokerage of your choice. In addition you’ll need a Canadian and USD currency bank account attached to the trading account.

From there, to take advantage of the relatively low currency exchange fees, simply:

  1. EFT CAD from your bank account to your non-registered discount brokerage CAD account
  2. Convert the CAD to your USD trading account.
  3. From there, request a withdrawal/cash transfer from your USD trading account to your USD bank account.

This process will take approximately 4-5 business days depending on how long the EFT transfers take.

Here is the cost of exchanging various amounts of Canadian Dollars assuming the surcharge is 1.5% (not counting any USD account withdrawal fees):

  • $500: $7.50
  • $1,000: $15
  • $2,000: $30
  • $4,000: $60
  • $5,000: $75
  • $10,000: $150

Specialized Services

There are foreign exchange brokers out there whose sole purpose is to help clients make international payments or do local currency exchanges. The best currency rates on the CAD USD transfers with a broker like WorldFirst, offering margins of as low as 0.5% per transaction (and better if you transfer more – as low as 0.1% if you transfer 7 figures annually). These rates will NEVER be as good as Interactive Brokers’ FX rates, but then again you don’t need a trading account and you can make transfers of foreign currency to a third party which is impossible to do with IB.

Local Bank Teller

I phoned a my bank for the rates when purchasing USD through a teller and they charge a hefty premium for purchasing USD.  At my bank (CIBC), they don’t have any fees for the exchange, but they charge 3.3% above spot rate.  I expected it to be a little more expensive, but 3.3% is a bit much.

However, this is one method of getting USD if you are in a hurry.  Otherwise, there are cheaper options.

Here is the cost of exchanging various amounts of Canadian Dollars assuming the surcharge is 3.3%

  • $500: $16.50
  • $1,000: $33
  • $2,000: $66
  • $4,000: $132
  • $5,000: $165
  • $10,000:$230

Credit Card

When I’m traveling in the U.S or any place that accepts USD, the most common method of payment that I use is my credit card.  Even though a credit card typically charges a premium of 2.5%, it’s much more convenient than carrying around U.S Dollars, and apparently cheaper than getting cash from a teller.

Final Thoughts

If you’re looking for a deal in currency exchange, you’ll need to plan ahead a bit.  While Interactive Brokers has great rates, they are not for everyone as they have an annual fee of $120USD.  I think the best all around deal is to have a non-registered low cost discount brokerage account that charges around 1% for currency exchanges (like Questrade).  Otherwise, I simply use my credit card while making small purchases when I’m across the border.

Do you have any tips on how to exchange currency with relatively low fees?

54 Comments

  1. Adam Okhai on March 9, 2011 at 3:08 pm

    I understand that the London-based bank HKSB’s Ontario branches now facilitate the purchase of foreign stocks , whether US, UK, CH , IN or other major market . I hv heard this from finance and investment types but I have not yet done it. US markets seem fully valued but there some stocks available at good values. If other factors work out, this could possibly be a good time to buy US stocks , taking advantage of the strong C$ .

  2. Imran on June 20, 2014 at 1:36 am

    I’ve used KnightsbridgeFX when I was buying a large sum of US dollars and I got a free wire transfer to the US. I didnt have the time to open a brokerage account and didnt want anything complex. They beat the bank rate by a lot.

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