Currency exchange: How to get more for your downward dollars

For Canadians travelling to the U.S., or to many other countries, there's no way around that falling Canadian dollar. But there are ways to save some money on your currency conversion. 

Three years ago, the Canadian and U.S. dollar were equal in value. The loonie has since fallen by nearly one-third.

• Canadian loonie: what the world looked like on past lows
• Canadians losing out on cross-border discounts as loonie continues plunge

Options abound and it would be nice if there was a comparison-shopping website for currencies, but we didn't find one to recommend. 

Nilan Peiris, of TransferWise, a London-based online money-transfer company, says it's not easy for customers to find the best deal when it comes to money transfers. 

"It's almost impossible to figure out, as a consumer, if you're getting a good deal," he says.

Experts tell us, as a general rule, you will get the worst rates at currency booths in airports and train stations.

At the bank

It should cost less exchanging your Canadian dollars at your neighbourhood bank before leaving on your trip.

But both the University of Toronto's Ambarish Chandra and Friedberg Mercantile Group's Michael Hart tell CBC News better rates exist elsewhere.

"Banks do work to ensure that the rates they offer are competitive, and they can be better than other foreign exchange providers," according to the Canadian Bankers Association.

Bank rates can be better, but they can also be worse. As with many purchases, it's "buyer beware."

Currency exchanges post rates for buying or selling a currency. Consumers want to exchange at a rate that's close to the midpoint of those buy-and-sell rates. Peiris refers to that mid-market rate as the only "real exchange rate."

So what's a consumer to do?

Peer-to-peer currency exchange

Let's say your next-door neighbour has a relative who's just arrived from Europe and wants to convert Euros to Canadian dollars. Your neighbour, knowing you plan to soon leave for Europe, puts you in touch with her relative.

If the two of you agree to make the exchange at the mid-market rate for the Euro and the dollar, you will both do better than you could at a bank or currency exchange.

According to the Bank of Canada's rough estimate, the fee banks and other financial institutions charge consumers "is typically around four per cent of the amount being converted."

In the scenario above, both you and the neighbour's relative save that four per cent.

That was the idea behind TransferWise.

The company is currently improving their setup for transferring Canadian dollars, and by the end of March, Peiris says it will be cheap, easy and fast to transfer loonies into other major currencies using their website. 

TransferWise was started in 2011 by two friends who frequently travelled between the U.K. and Estonia: Kristo Kaarmann, a former management consultant, and Taavet Hinrikus, Skype's first employee.

TransferWise does peer-to-peer money transfer, using the midpoint rate for the two currencies and charging a fee of about one per cent on transfers between $500 and $1,000 US, with the rate dropping slightly for larger amounts. The fee on a $50,000 transfer would be about 0.72 per cent.

Peiris, the company's vice-president of growth, says TransferWire strives to be transparent with consumers. He views the rest of the industry as almost in collaboration "to obfuscate pricing and make it much more difficult for consumers to shop around."

Exchange currency online

If exchanging amounts over $5,000, U of T's Chandra recommends online currency exchanges. Chandra teaches business economics, with his current research focusing on travel and trade across the Canada-U.S. border.

That includes websites like TransferWise, OFX, XE Trade, NorthStar and Payline by International Currency Exchange.

Other companies, like Knightsbridge Foreign Exchange, do transactions over the phone.

In general, using these services requires some advance planning — the first time you use it, you will need to set up an account — and have bank accounts in both currencies. The exchange can take up to six business days but usually takes about three. 

You can pay off a foreign currency credit card this way, or use it to get cash, but that will require a visit to the bank.

To get around not having the right foreign currency bank account, people sometimes have the money transferred to the account of a friend or relative where they will be travelling. In the trade, this is known as "using a friend as an ATM."

Credit card alternatives

For most Canadian tourists going on short trips, most of the time Chandra advises using your credit card to make purchases in the U.S. and many other countries. Their exchange rate should be slightly better than the banks, he says.

Expect to lose about 3.5 per cent using your credit card in the U.S., and more than four per cent in other countries.

• Travel destinations made even more attractive with the low Canadian dollar
• 7 ways to beat the drooping dollar when booking your vacation
• Foreign getaways becoming Canadian staycations

Frequent travellers can do even better using a U.S. dollar credit card, Chandra says. You may be able to get a card through a U.S. bank and some Canadian banks also offer U.S. credit cards, as well as U.S. dollar accounts.

The key to saving is in how you pay that monthly credit card bill (and don't forget to check credit card fees).

There are also credit cards available that don't charge foreign exchange transaction fees.

Rogers Bank, from the telecom Rogers, offers one through MasterCard. Rogers says they don't add a 2.5-per-cent charge, the way the big banks do on their credit cards, and the exchange rate they use, for U.S. dollars at least, is the Bank of Canada's mid-market rate. The big bank credit cards use the MasterCard or Visa exchange rate, which costs the consumer another one per cent or so.

Other credit cards that say they don't charge a foreign exchange fee include the Marriott Visa and Amazon Visa from Chase Canada.

Another way to cut the fees

Chandra has another recommendation for a way to avoid foreign exchange fees. This method requires buying shares in an interlisted company on a Canadian stock exchange and then selling those shares on, say, a U.S. stock exchange.

This method should get you U.S. dollars at the true mid-market rate, he says. He recommends this method for exchanging large sums and doing it through an online broker to keep the trade fees low. And of course, the stock price could go up or down in between your two trades.

If you are trading large amounts, you can also negotiate a better rate than what the bank or exchange company posts, especially if you can prove other places are offering a better deal.

While the loonie may be way down right now, Chandra advises against gaming the markets in hopes of getting a better rate. "It's not worth the trouble and the psychic costs of trying to look at the markets every day," he says, adding that "you're very rarely going to win by a whole lot."

One of the best ways to save money on currency exchange is to pay with Canadian cash in the U.S. Despite the plunging loonie, some U.S. businesses still accept Canadian currency at par, although the number is dwindling.