The Best Low Cost Ways to Convert CAD to USD
Updated November 2021 to provide additional information in regards to converting large amount of CAD to USD using Currency Brokerages/Money Transfer Comparison
Back in late 2014, we wrote about how great it was to be holding US Dollars (USD) due to the declining Canadian dollar (CAD). At the time of that post, it cost $1.13CAD to purchase $1 USD, or a 13% premium.
Due to falling oil prices and inflation, it now costs $1.26CAD to purchase $1USD. What does that mean in context?
Well, say you want to purchase a $100k USD condominium in Florida. In November 2014, it would have cost $113k CAD (forget about foreign exchange fees for now). Assuming that the condo did not appreciate since 2014, the condo today would cost $126k CAD.
What does this have to do with the cheapest way to convert CAD to USD you ask?
Well, if you are a savvy investor (which you clearly are since you are reading MDJ), you want to research all investment options to make sure you’ll get the most bang for your buck. For instance, if you’re looking to purchase real estate in the US, you’ll need a lot of USD, and if you’re not careful about how you exchange your CAD for USD, you could lose thousands to unfavorable exchange rates and fees.
The other obvious example of investors needing to pay attention to exchange rates is when Canadian investors purchase stocks on a USA stock exchange (such as the Nasdaq or New York Stock Exchange).
When this transaction occurs, Canadians are effectively taking their CAD, converting it to USD, and purchasing a stock/ETF – all at the same time. This is likely a sacrifice of 1% or so – and who wants to needlessly donate 1% of their portfolio?!
Whatever your reason for wanting to exchange CAD to USD, whether it’s for a new investment, or to escape the frigid winters of the North, we’re here to explain the best ways to save in the process.
1. Norbert’s Gambit
For those of you with a lot of USD in a trading account and looking to capitalize on a weaker CAD, there is a strategy called Norbert’s Gambit that you should be aware of. While this strategy is not for novices, it can basically reduce your FX spread to two trading commissions (plus buy/ask spread). In other words, very cheap.
To start, this strategy is best with RBC and BMO trading accounts. At a high level, the investor will purchase inter-listed stock (stock listed on both a US and Canadian exchange) like RY in USD, then immediately sell the same stock in CAD.
BMO and RY trading accounts will automatically move shares from USD to CAD, so there is no delay, so less risk of the stock moving against you. Most discount brokerages will require a phone call to “journal” your shares from your USD to CAD account.
It may sound complicated, but here is a step by step on Norbert’s Gambit.
2. Interactive Brokers
If you feel uncertain about trying Norbert’s Gambit for a low cost way to convert CAD to USD, don’t worry, there are other options available, such as Interactive Brokers. Interactive Brokers has been long trusted as one of the most low-cost ways to convert foreign currency.
Most discount brokers charge about 1-2% per CAD to USD currency exchange, while most banks charge up to 4-5%. Once logged into their account, users can check the exchange rate, which is usually quite favorable compared to other methods of converting. Commission rates start at 0.2 basis points with a minimum of $2 per order. In general, you should be prepared to fork over 1.5-1.99% in commission fees to Interactive Brokers per trade.
To convert currency with IBKR, you will need an account, which is straightforward enough to open, and now costs nothing to do (previously there was a $120 annual fee for users). If you need the money fast however, this is definitely not the most efficient way to do it.
If you EFT the money from a USD bank account into an IBKR account, and deposit it into a different account (such as a CAD bank account), they will hold the money for 60 days. Another thing that makes IBKR a less desirable choice is because user interface is not beginner friendly.
In summary, IBKR is still a top choice for foreign exchange overall, but you should always do your homework and check around for conversion rates from other Canadian brokers to see if it’s worth it. I can see this option being a great solution for existing IB account holder, if you don’t need the money within 60 days, AND are willing to go with a brokerage that hasn’t ranked the highest on our discount brokerages comparison.
If you would like to learn more, read my full Interactive Brokers review here.
If you know you want to use a broker for your currency exchange transactions, and looking for the best choice for forex trading, day-trading, and options trading then go with IBKR. If you plan to use a broker for other purposes, like dividend investing, use Qtrade or check our full list of best brokers.
3. Do it Online with Currency Brokers / Money Transfer Companies
Back in 2014 when we first published an article on the best way to convert CAD to USD, there weren’t nearly as many trustworthy online international money transfer services.
Luckily, over the years a few more options have proven themselves to be trusted options to transfer transactions quickly and easily. They are known for their bespoke service and also offer a range of non-speculative hedges, so they might be worth a shot.
How does it work?
With big Currency Brokers or money transfer companies, it works like this:
- You transfer CAD to their bank account (a segregated account held by a major Canadian bank).
- They exchange it (in our case exchange CAD for USD), and transfer it back to you domestically in the currency you desire to your own U.S denominated bank account (or – if this is a payment, to the desired recipient anywhere in the world).
Just like that, you’ve made your exchange.
Major brokers like OFX (formally Canadian Forex, in Canada), Currencies Direct, Moneycorp, and XE (merged with HiFX), to name a few, will have Canadian bank accounts and access to approximately 120 currencies on average.
How much will it cost?
Spreads of 0.5%-1% for a large CAD to USD transfer or conversion were pretty much the industry’s average circa 2014, but aren’t anymore. Companies like Transferwise commit to a certain margin of approximately 0.5%, while others like Currencies Direct or Moneycorp don’t necessarily commit to a certain margin.
However, if you are transferring tens of thousands CAD or more, they’ll likely offer a price competitive enough to beat the two aforementioned companies (WorldFirst, Transferwise).
The lowest possible margin you can get on a very large transfer or as a corporate client is likely to be at around 0.25%.
Are these companies trustworthy?
Money transfer services have become widely popular. Just look at Transferwise which is moving more than 5bn CAD equivalent every month, and is considered the top UK startup nowadays in terms of valuation (and IPOd on the LSE earlier this year).
You have a lot more companies who move billions annually and adhere to very strict regulations and rules in regards to what they can and can’t do with their clients’ money. Companies like Currencies Direct are monitored by the British FCA, as well as by FinCEN and FinTRAC.
Here you can read additional reviews of the best international money transfer companies.
Summary of The Best Ways To Convert CAD to USD
What used to entail a long, time consuming and cumbersome process has thankfully been made easier. The rise of online brokers and money transfer services have brought snowbirds, real estate investors, Canadian stock investors, and forex traders a convenient and trustworthy way to exchange large amounts of currency.
Tell us your thoughts!
For those of you who regularly exchange money from USD to CAD, or convert CAD to USD, what is your strategy to reduce fees? What do you think is the absolute best way to convert CAD and USD?
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I’m looking at buying real estate in Canada, but have USD. Will need to convert around $500k USD to CAD.
Could someone suggest the most efficient method for this? I don’t have a Canadian bank account and am not a Canadian citizen.
Thank you very much.
@frugaltrader. I have used knightsbridgefx and they have a $2k minimum and you can do EFT with them (free incoming and outgoing), no wire needed. when I did it, the funds moved automatically from my TD USD bank account to my TD CAD bank account.
I tested it with $2k and then did $18k. Saved money vs my bank.
What’s the maximum recommended amount to move in one transaction with DLR? Can doing large sums move the price of DLR and affect the effective exchange rate?
Interactive brokers no longer have a minimum of $120/year if the account has >$100,000 USD equivalent.
Regarding capital gains on forex, I think I read somewhere the 1st yearly 500$ is tax free in Canada.
To me, best way to do it is with the DLR / DLR.U pair on the TSX, using Questrade.
Since buying any ETF is free, you’d only pay a 1¢/share commission on selling.
So, for 5k$, you buy roughly 500x DRL for free, have the shares journaled over by chatting with a service representative, then sell the same amount of DLR.U for 5$ + ECN fees (or just place a non-marketable limit order and wait for the bid to reach your price to save these fees).
That’s basically a 0.1% forex cost.
For these considering interlisted stocks, just be careful to use one you don’t already own and never did in the previous 30 days as it might affect capital gain/loss treatment.
Edit : Just read in the next post that the correct forex gain exemption is 200$.
Can Norbert’s Gambit be done with a Questrade account? Why are bank brokerages preferred? Does anyone know if Questrade is easy to deal with as far as USD goes?
If you are going from CAD to USD, you can use DLR/DLR.U and Questrade is fine for that exchange even with the delay in journalling over shares from CAD to USD.
However, going the other way from USD to CAD, the delay in journalling shares incurs risk that the currency may move against you.
I buy interlisted stocks. I want more USD assets over time inside my RRSP so I’m buying more CDN stocks that are interlisted AND they pay dividends in USD $. Examples include BEP, BIP, POT and TRI.
I recall you need to have a good chunk of change to do it with FX Brokers.
Another good dividend stock that pays dividends in USD is AQN (although not interlisted).
USD dividends are fine in registered accounts, but could add to the tax prep headaches when the T3 and T5 slips include both CAD and USD income.
Love Norbert’s Gambit so much. What a great and easy way to save in FX. Just wished I had some more US dollar.
What would be the savings doing it at the bank (best rate) on $100,000 USD to Canadian vs the Norbits Gamble method. This would give me an idea on the approximate saving per 100k exchanged? thanks
My bank’s exchange “fee” is about 2.5%. I have used both the Norbits Gamble with DRL and KnightsBridge FX to get around the cost. Norbits Gamble would save you about $2500 per $100K and KnightsBridge would save you at least $1500 (by my calculation with my one transaction with them). If you are moving $5K or higher, these techniques definitely pay off.
@Michael, what equity do you use for Norberts Gambit? Do you have an account with BMO or RY?
I use DLR and I am with Scotia iTrade. I do have to make one phone call to them to journal the shares to my other account.
I have refined Norbits Gamble in a way that I always make a profit as well. If you plan, and don’t actually need the money for 2-3 weeks, try this algorithm: After the shares are journalled over, sell the DLR shares only when they give you a small capital profit (say, 1-2 percent) or when you have had them for 2-3 weeks. As you know, currencies fluctuate in a thin range, and hence so does DLR. If you have some time, just wait for a fluctuation in your favor and then sell. Of course in theory it is possible this never happens, which is why you put a time limit on it. This could go against you but so far it always seems to work for me.
I’ve converted 50k EUR to CAD from my bank account in France (BNP Paribas) to my bank account in Canada (Scotia Bank) without any issue using IB this month. It took a couple of days to deposit the money to IB and only 3-4 hours to withdraw it. My GF used CurrencyFair for a larger amount which is more expensive than IB but way less expensive than banks (our initial test FX transfer using banks was charged a 2.7% fee!). Not sure why IB would hold your money for 60 days? At least, it didn’t do it for mine (and I wasn’t even aware it could!).