The Bank of Canada (BoC) is not a typical consumer-facing bank where you can open a savings account. BoC is a crown corporation that acts as the bank for banks and regulates the Canadian economy. While BoC does not exchange money directly for consumers, it has a large influence on the exchange rates used by other banks. You can use the rate that BoC provides to compare exchange rates between financial institutions.
The “Big 5” are Canada’s 5 largest commercial banks. They provide almost every financial service. You can convert CAD into almost every currency by using a bank. They will typically have a slightly higher exchange rate. However, they are reliable, accessible, and easy to use. To use a bank for currency exchanges, you must have a bank account with them, or only a credit card in some cases.
The Foreign Exchange Spread: The foreign exchange spread (bid-ask spread) is the difference between buying and selling foreign currency using CAD. If you exchange CAD for USD and then convert it back to CAD, you will not have the same amount that you started with. Instead, a percentage of the transaction is taken out each time you exchange currencies. This fee is applied to all currency exchanges.
Cash vs Non-Cash: When converting currency using a bank, you can either exchange real cash or make a non-cash transaction. You can exchange real cash by walking into the branches of a bank or using an ATM. Non-cash transactions include online transfers, payments, cheques, etc. Sometimes, the foreign exchange spread will be higher for cash transactions because cash must be physically transported between banks.
Western Union is a financial services company that specializes in letting users transfer money internationally. They are not one of the Big 5 Banks, but their foreign exchange services are similar. Their exchange rates are usually better, but there may be fees that make transfers more expensive than conventional banks. Western Union mainly acts as an intermediary and they do not perform the functions of a conventional bank. However, they have many locations where you can receive payments in cash. You also do not need to open a bank account to exchange currencies.
Online currency exchanges are not banks or financial institutions. They transfer funds between two bank accounts in different currencies. This means that you will need to have separate bank accounts in both currencies. However, some services, like TransferWise, have accounts where you can store , ttransfer, and receive currencies from different countries.
There are many online currency exchanges available in Canada. Below are the exchange rates for the 3 largest companies in Canada.
If you have a CAD-denominated trading or investment account, all of your trades will be conducted in CAD. If you buy or sell foreign-listed stocks, you may be charged a foreign conversion fee when changing CAD to and from another currency. This can happen when buying or selling US-listed stocks. Some stocks listed on the Toronto Stock Exchange (TSX) can also be denominated in USD and be subject to conversion fees. Currently, the two largest online brokers are Questrade and Wealthsimple.
Questrade allows users to hold both CAD and USD in their registered accounts (Eg. RRSPs, TFSAs, etc.). This means that you only have to pay the currency exchange fee when you run out of the proper currency. If you have enough USD in your account when buying a U.S. security, you will not be charged a currency exchange fee. Make sure that you keep proceeds from U.S. stocks in USD because Questrade converts it into CAD by default.
Currently, Wealthsimple does not allow you to hold USD in your account, which means that you are charged a currency conversion fee for every trade that you make. They do not charge any other fees on trades.
When you are traveling abroad and in need of quick cash, there are other methods of exchanging currency. These methods typically have higher exchange rates, so you should only use them if needed. You should be able to use these methods in almost any country as long as it has basic infrastructure.
When using your credit card internationally, the credit card company will automatically apply a foreign transaction fee. In Canada, this usually is 2.5% of the total transaction, however, this fee can vary between banks and credit card companies. Some credit cards even waive the foreign transaction fee and the ATM fee. Before using your credit card internationally, contact your card issuer to let them know you are traveling and ask if there are any restrictions on international use. Using your credit card instead means you won’t have to re-exchange your remaining cash after your trip and you will have a payment method readily available at all times. You may even want to get a credit card in the currency of the country you are visiting and then pay it off by exchanging currency after your trip.
Small currency exchange boutiques allow you to exchange cash on the spot. These stores will usually have large exchange fees, so try to avoid them and use a bank if you can. However, if there are no banks or bank ATMs nearby, these stores are very convenient. Sometimes, currency exchange stores will operate under a larger brand. You can research the companies that own these stores before traveling to understand their fees and locations.
You should only use airport ATMs as a last resort. They will charge you much higher rates than banks and bank ATMs. Airport ATMs will charge a flat fee of $5 - $15 and an additional foreign exchange spread of about 7% - 20%. For reference, Canadian banks charge about a 5.4% spread on average. If you have the time, it is always worth the time to look for other methods of exchanging currency. Throughout your trip, this could end up saving you hundreds of dollars.