The Best Low Cost Ways to Convert CAD to USD: Cheaper Ways for Currency Exchange

Updated 2020 to provide additional information about an additional way to convert large amount of CAD to USD using Currency Brokerages / Money Transfer Comparison

Back in late 2014, I 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 the drastic oil decline over the past 18 months, CAD has followed the price of oil, today it costs about $1.40CAD 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 $140k CAD.

Needless to say, those that took advantage of the opportunity to buy deflated US real estate when CAD/USD was at par (2010-2013) have made a great investment!  Not only has US real estate prices appreciated (for the most part), but selling a USD investment today means a 40% premium when converted to CAD.  Same goes for those who loaded up on US stocks during that time.  Not only are you getting capital appreciation, but your dividends are getting paid in USD.

So what happens now if you have a bunch of USD and want to convert it back to CAD, or otherwise?

Most financial institutions charge a healthy spread for foreign currency exchange, usually in the 2.5%-5% range, which on $100k is up to $5k in fees.

Discount brokerages do a bit better 1% and 2%. The former is not a bad at all margin for a trade but still isn’t the cheapest way to convert Canadian Dollars to US Dollars.

In light of this, here are some ways to reduce the cost of exchanging your USD to CAD.

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 and an 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

This may be a the ultimate method of moving money from USD to CAD or reverse, as it is cheap, quick and easy (ish). Most discount brokers charge about 1-2% per CAD to USD currency exchange, Interactive Brokers charges: 1 basis point (0.01%) + $2.50 USD.  Login to your account, place a forex trade for symbol USD.CAD, and sell the amount that you wish.

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). In addition, if you EFT the money from a USD bank account into the IB account, and withdrawn into a different account (CAD bank account), they will hold the money for 60 days.  Third, the IB user interface is not beginner friendly. to summarize, we recommend other online brokers like Questrade, but their currency exchange spreads are x100 higher than IB’s.

I can see this option being a great solution for existing IB account holders AND if you don’t need the money within 60 days, and willing to go with a brokerage that hasn’t ranked the highest on our discount brokerages comparison.  You can read my full Interactive Broker review here.

3. Do it Online with Currency Brokers / Money Transfer Companies

Back in 2014 I wrote

While the two options above may not the best for someone without any trading experience, there are options out there that are truly easy and offer their services for a reasonable rate  (relative to the big banks).  I’m a bit hesitant to write any examples as I have never used their services, but from what I’m reading online, a couple of competitive options are Knightsbridge FX and XETrade.

How do they work?  With Knightbridge (minimum $10k), you wire them your USD (approx $20 fee), they would do the exchange, and EFT CAD back to your account.  From what I can see on their website, it appears that they charge a fee of approximately 0.5%-1.0% of the amount requested to be exchanged (plus wire fee).

Nowadays, Million Dollar Journey’s writers are far more knowledgeable about this topic and feel those are reliable companies that can handle large CAD to USD transactions very well. They are known for the bespoke service and also offer a range of non-speculative hedges, so they might be worth a shot.

The way it works with big Currency Brokers or money transfer companies, as they like to be called nowadays, is as described originally in 2014. 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). Major brokers like OFX (formally Canadian Forex, in Canada), Currencies Direct, Moneycorp, and XE (merged wtih HiFX), to name a few, will have Canadian bank account and access to approximately 120 currencies on average.

If the purpose of your conversion is to transfer the money internationally to the USA, then you can simply name the recipient and they will pay him the money in USD through a local U.S bank account (except WorldFirst, which has shut down its American offices in 2018).

Spreads of 0.5%-1% for a large CADUSD 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 but if you are transferring tens of thousands CAD or more, they’ll likely to 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%.

When it comes to being hesitant about recommending them, that hesitation has dissolved during this period. The money transfer company solution has 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 (2021 updated – about to go on an IPO). You have a lot more companies who move billions annually and adhering 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.

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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FT

FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
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Ryan
1 year ago

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.

Jim
5 years ago

@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.

crimsondr
5 years ago

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?

N
5 years ago

Interactive brokers no longer have a minimum of $120/year if the account has >$100,000 USD equivalent.

Raymond
5 years ago

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.

Raymond
5 years ago
Reply to  Raymond

Edit : Just read in the next post that the correct forex gain exemption is 200$.

Dave
5 years ago

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?

My Own Advisor
5 years ago

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.

Raymond
5 years ago
Reply to  My Own Advisor

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.

BeSmartRich
5 years ago

Love Norbert’s Gambit so much. What a great and easy way to save in FX. Just wished I had some more US dollar.

Cheers!

BeSmartRich

New Investor One
5 years ago

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

Michael
5 years ago

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
5 years ago
Reply to  FT

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.

Al
5 years ago

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!).