With travel starting up again, understanding how to save money when exchanging currency is a a valuable tool in the saver’s toolkit.
The Basics: How Currency Exchangers Make Money
Currency exchangers make money in a couple of different ways – (1) through the exchange rate they charge consumers (generally by marking up the exchange rate they charge consumers to include a profit margin) or (2) charging a fee (and, most commonly, both).
A few anecdotal studies have been published which look at exchange rate differentials between, say, exchanging currency at your local bank and charging a foreign currency purchase to your credit card. For those of you who are academically inclined, feel free to search the internet and spend a few hours reading through those studies. For the rest of you, Mr. Thrifty is here to save you the trouble and get you to the bottom line.
Recommendations for Everyday Travel
Minimize hard currency and maximize plastic.
That is, unless you are looking to start a coin collection with all of your leftover change. And, if you are, please contact Mrs. Thrifty – she has been looking to find a taker for Mr. Thrifty’s assortment of leftover coins and currencies for quite some time. In addition to minimizing leftover coins and currency, you are unlikely to get a competitive rate when exchanging money at local banks, kiosks and other physical, dedicated exchange rate locations. And, kidding aside, for personal safety reasons Mr. Thrifty recommends not carrying around a large amount of hard currency in a foreign country.
Credit cards, prepaid debit cards and ATM cards are your best bet for a competitive exchange rate, but be careful that the money you save on the exchange rate is not eaten up by fees.
Credit Cards – Use a Card Without a Foreign Currency Conversion Fee.
Most credit cards charge a foreign currency conversion fee for any purchase made in a foreign currency. Many of the credit cards that waive the foreign conversion currency fee charge an annual fee. Mr. Thrifty has identified a few cards that charge neither an annual fee nor a foreign currency conversion fee, and provide cash back rewards as well – click here for the listing.
For U.S. Travel, Consider a USD Credit Card.
For people who travel frequently to the U.S. and also earn income in U.S. Dollars, a U.S. Dollar credit card may be worth investigating. We profile the options available to Canadians, including credit cards with annual fee rebates, in our article on U.S. Dollar Bank Accounts and Credit Cards for Canadians.
ATM Cards.
Using your regular ATM Card outside of Canada is an option worth exploring as you will get a competitive exchange rate; however, the money you save on the exchange rate may very well be eaten up in transaction fees – check the terms and conditions of your account agreement very carefully.
Tangerine/Global ATM Alliance
Fortunately, Canadians have a little known money-saving alternative in this area too: Scotiabank. Scotiabank is a member of the Global ATM Alliance, which consists of a number of member banks with reciprocal agreements that allow each bank’s customers to use an ATM card without an access fee. Scotiabank has a number of banking packages available, many come with a monthly fee. If you are not already a Scotiabank customer and are looking for a no-fee “back-door” entry into the Global ATM Alliance, Mr. Thrifty recommends opening up a no-fee chequing account with Tangerine, owned by Scotiabank.
Recommendations for Larger Transactions
To state the obvious, the amount of money you can save is directly proportional to the amount of money you want to exchange. For larger currency conversion transactions you can save a substantial amount of money by looking outside of the major banks. The following service providers are worth exploring:
OFX (formerly CanadianForex)
OFX is another online service for converting currency and transferring money across borders. It, too, advertises that its services are substantially cheaper than traditional banks. OFX is a publicly traded company headquartered in Sydney, Australia. In Canada, OFX is based out of downtown Toronto and has been doing business in Canada since 2007.
The OFX Advantage.
OFX prides itself on a great digital experience combined with friendly, specialist phone support 24/7 to complement its highly competitive rates.
How OFX Works.
OFX has a network of about 115 bank accounts in its global network and offers over 55 currencies. When you send foreign currency with OFX, you deposit Canadian dollars into OFX’s local Canadian Dollar account and it then sends the equivalent amount of money to the recipient from its local bank account in the recipient’s country.
But What About the Fees ? Special Deal for Mr. Thrifty Readers!
OFX usually charges a $15 fee for trades below $10K, which is waived for all Mr. Thrifty readers. The company makes its money by including a small margin on the exchange rate, where clients typically save 2% vs the banks.
Register here to start saving today!
Curious about current exchange rates? Start comparing with this handy calculator:
How Best to Use OFX.
For individuals, the best way to use OFX is to save on international money transfers. OFX offers the following ways to transfer money
- Single Transfer: as the name suggests, a one-time transfer
- Recurring Transfers: schedule multiple transfers over time – helpful for recurring transfers like mortgage or tuition payments.
- Buy Now, Transfer Later: lock in an exchange rate now for a transfer up to 12 days in the future
- Set Your Target Rate: don’t like the current rates ? set your target rate and if it is triggered OFX will contact you to complete the transfer.
To learn more about how you can use OFX to save money click here.
Wise (formerly TransferWise).
One of Europe’s largest and fastest growing fintechs, Wise is an online service for converting currency and transferring money across borders, at a much lower cost than traditional banks.
The Wise Advantage.
Wise derives its competitive edge by disrupting the way big banks traditionally engage in the money transfer business.
How Wise Works.
When you send foreign currency with Wise, you deposit Canadian dollars into Wise’s local Canadian Dollar account and it then sends the equivalent amount of money, determined using the publicly disclosed mid-market exchange rate (a rate far more competitive than you are ever likely to get at a bank), to the recipient from its local bank account in the recipient’s country.
Unlike sending money with a traditional bank, when you use Wise, there are no wire transfers and no intermediaries. Wise charges a reasonably small fee and you will generally come out ahead when compared to doing business with a big bank.
Wise claims that it is up to 8x cheaper than traditional banks.
How Best to Use Wise.
1. Save when sending money to someone in a different country.
2. Open up a Borderless Account — a multicurrency account which allows you to send, receive and hold money in 40+ currencies. The Borderless Account is good when you want to make a large purchase – think tuition fee, gift, mortgage payment, etc. – in a different currency. Click here to open up a Borderless Account and start saving money.
Wise has also partnered with EQ Bank, a Thrifty favorite, to offer EQ Bank customers a low cost, convenient way to transfer money internationally.
3. Foreign Travel. There are currently better solutions for everyday travel, but Wise is developing its own Mastercard debit card (not yet available in Canada) which will make it a good option for the everyday traveler. Stay tuned. Until the debit card comes out, travelers can potentially save by converting and transferring money into a foreign bank account and then using that money locally when travelling.
To learn more about how you can use Wise to save money click here.
Knightsbridge Foreign Exchange
Knightsbridge is a Canadian company, started by a former RBC banker in 2009, which offers competitive exchange rates without additional fees.
The Knightsbridge Advantage.
Knightsbridge guarantees that it will beat your bank’s exchange rate while offering same day delivery of funds through bank transfers or online bill payments.
How Knightsbridge Works.
Knightsbridge effectively harnesses the power of bulk currency purchases (not to mention lower overhead) to undercut the exchange rate offered by Canadian banks.
In order to perform a currency exchange with Knightsbridge you need to first set up a free / no obligation online account. You will then phone up to receive the exchange rate, and receive written confirmation of your exchange rate before funds are converted and then transferred to your destination of choice.
While its website indicates that it can convert currencies other than U.S. or Canadian Dollars, Knightsbridge doesn’t offer much detail beyond those two currencies – definitely geared towards North America (as opposed to TransferWise).
How Best to Use Knightsbridge.
Much like Wise (except less internationally focused) Knightsbridge is best used for people who want to accumulate U.S. dollars for a large purchase and is less useful than Mr. Thrifty’s other recommendations for everyday travel. People who spend a lot of time in the U.S. could find it useful by converting Canadian dollars to U.S. dollars, transferring the U.S. dollars to a U.S. bank account and then using the money while in the States. It’s debatable whether that tactic saves you more money than the Mr. Thrifty’s other recommendations.
Canadian Snowbird Association.
The Canadian Snowbird Association offers a currency exchange program to both association members and non-members.
How the CSA Program Works
Much like Knightsbridge, it harnesses the power of bulk currency purchases to offer participants in the program a competitive exchange rate. Its exchange program is limited to Canadian-U.S. Dollar currency exchanges and it delivers the U.S. Dollar proceeds of the exchange directly to a participant’s U.S. bank account.
Unlike Knightsbridge, the Canadian Snowbird Association doesn’t make any guarantees about the exchange rate it offers but it is an interesting option worth exploring. Fees to participate in the program vary according to whether a participant is a member of the Canadian Snowbird Association but seem pretty minimal in any event.
Click here to learn more.