Who's it for: People who move money between Canada and the US.
What's the point: Using foreign exchange companies or Norbert's gambit can save you significant money on fees.
This week we talked EXCHANGE FEES 101, and how to save a few bucks when you’re spending with cash or credit cards.
Saving a few bucks is all well and good, but when you’re a freelancer doing some serious work in the states you’re trading cash on a different scale.
If the bank takes a couple of percents as a fee off of 100 bucks worth of cash… it’s only a few dollars. That same fee taken off 10,000… starts to hurt a little more.
So today we’re going to talk about a few ways that you can bring your money from the states to Canada that’ll save you a whole bunch of money.
The happy side of a bad Canadian dollar
For those of you who have made some money in the US in the last year, you’re probably pretty happy.
A 70 cent dollar is terrible for anyone spending Canadian money in the states, but when you’re making US dollars… it’s like getting a 30% bonus.
It’s basically the best.
So why should you care about saving a few lousy percent on the transfer?
Well, maybe you shouldn’t, but you could save (or make, depending on how you look at it!) hundreds of dollars… with only an hour or so of work…
Interested?
Today we’re going to talk about two methods, one simpler, and one crazy fancy one that I mainly included because it has an awesome name.
- Using a foreign exchange company
- Using Norbert's gambit
Part 1: Using a foreign exchange company: Your Knight(sbridge) in shining armour...
There are a lot of companies that offer foreign exchange services. Like I said in my EXCHANGE RATES 101 POST, banks and other currency exchange businesses make a ton of profit changing money over.
But there's a group of companies that have decided to make it their business to undercut that bank fee that we talked about yesterday: instead of charging between 2 and 3 percent on the deal… they’ll do it for just a half of a percent.
How can they afford to do it? Because they trade in huge volumes, and then pass (some of the) savings on to you and me.
But Chris… I don’t trade in huge volumes. I just want to take my 2000 dollars that I made on a gig in the states and bring it back to my Canadian bank account.
This is the thing that I didn’t realize… you don’t have to be trading huge amounts to take advantage of these companies. Actually, lots of freelancers already use services like this for the exact kind of modest paycheques that you’re talking about.
Let’s take a look at one of those companies now: KNIGHTSBRIDGE.
They’re a Toronto based currency exchange company that does exactly what we’ve been talking about: exchange your money for a lot less than the banks.
I talked to the fine folks at Knightsbridge over the past week and got the scoop on how this would all shake down:
How does Knightbridge work?
Fee: 0.5%
Minimum Amount: 2000 dollars
But...how does it work:
- Make an account online (takes about 2 minutes)
- Call in to their centre to get a locked in exchange rate (Locked in is great. It allows you to know exactly what you’ll be receiving. Less risk. Less variability.)
- They’ll send you an email with the details
- You send them US funds (either by wire, or debit account to account transfer… whatever makes most sense with your bank. They’ll help you figure out exactly how to do this, it’ll be different depending on which bank, and which country you’re working from.)
- In 4 - 5 days you have the money sitting in your account
Is it safe:
- They say yes. If you’re not sure check out their site. They’re regulated by the government, your money can be traced electronically with a confirmation number, and if you’re really unsure they say they’ll put you in touch with other customers who’ll tell you how it all went down.
There are other companies that do that same thing, I’m just using Knightsbridge as an example. It’s also worth noting that this exchange works both ways (US dollar to Canadian OR Canadian to US). If you’re looking at getting a larger amount of cash (or setting up a US float, like we talked about in the last post…) you can use the same process. They also handle other currencies… but that’s not what we’re talking about right now.
What can you actually save (and is it worth it)?
2 percent. You could save up to 2 percent, and that’s the price difference that was quoted to me when I talked to them.
But is 2 percent worth the hassle? Even though it’s not a super complicated process, it will take some time… especially the first time you’re doing it.
Let’s look at a few examples:
Billy is a freelance writer who just completed a corporate campaign for an American company which earned him a cool 2000 dollars. He’s looking for a way to bring that money back to Canada.
- If he uses his bank (assuming a 2.5% fee, which is what my bank was charging) he’ll end up paying 50 bucks in extra fees to the bank.
- If he uses Knightsbridge (or a similar company) he can save up to 2 percent (their fee was quoted to me at 0.5%). He’ll end up paying 10 bucks in fees.
Billy saves 40 bucks.
What about Chuck? He's been working as an actor on Broadway for 6 months, and saving his tail off. The contract ends, and he's got 20,000 American dollars he can’t wait to bring back to Thunder Bay (that’s in Canada).
- If he uses the bank (assuming the same 2.5% fee) he'll pay 500 dollars in fees. #yikes
- If he uses Knightsbridge (assuming the quoted 0.5% fee) he'll pay 100 dollars.
Chuck saves 400 bucks.
Part 2: The gambit that is Norbert’s
When I activated the personal finance bat signal and asked for help on exchange rates, I was answered with a question mysterious enough for any batman storyline:
… how intriguing is that reply?
A short side step for those of us (and there must be a ton of us) who have never heard of Norbert’s gambit. How cool is that name? What does a guy have to do to have a ‘gambit’ named after him??
I will be taking suggestions for potential namesake gambits, please leave them in the comments below.
Are you an american living in canada?
Listen to cross-border finance expert Julia Chung talk about the complications of existing on both sides of the border.
What is it, and how does it work?
Norbert’s gambit is a completely legal way to bring american money over to Canada while completely ignoring all the institutions that charge you fees. All of them.
Sound good?
I will not go into insane amounts of detail on how it’s done. If it intrigues you, I’ll leave you with some resources to check out instead.
One of those great resource actually comes from the guy who sent me down this rabbit hole to begin with: Holy Potato, the author of “THE VALUE OF SIMPLE” a great resource on DIY investing in Canada (seriously, if you want to learn about investing … it’s a great place to start).
He explains the gambit thusly:
“One way to think about Norbert’s gambit is to visualize the physical case: if you were in Windsor, Ontario and wanted some American dollars, you could go to your local bank and they would charge you a premium for them - though the exchange rate might be at par, the bank would charge you 1.02 Canadian for each American dollar you bought. To avoid that, you could buy something that’s easy to sell for a universal value on either side of the border - a gold coin, or a share of stock - with your Canadian dollars, walk across the bridge to Detroit, and sell it to get American dollars at the fair exchange rate, avoiding the banks fees. That is pretty much what you’ll do in Norbert’s gambit, but with units of an ETF, and you never have to leave your desk.”
He then goes on to explain exactly how to do it with a TD or Questrade account.
I’m not an expert in that stuff, so I’m going to avoid the details to make sure I don’t mess something up (although I’m looking forward to learning more). If you’re interested, check out ‘The Value of Simple’ HERE, or THIS ARTICLE by the Globe and Mail which explains more.
You can also get a complete guide to Norbert's gambit HERE.
If you are already trading ETFs, and know some investing basics, Norbert’s gambit is not that hard to do. But if the letters ETF mean nothing to you… don’t worry about this right now.
This might be one of those situations where paying a half a percent fee is totally worth not having to spend hours learning how to trade ETFs.
But for those of you who are looking for any edge, or who do a bunch of work in the states and bring home large sums… definitely check it out.
Think of how cool it would feel to say:
“I don’t use the bank for my foreign exchange… I’m more of a Norbert’s gambit guy.”
#cool
** Just a note, although you avoid foreign transaction fees, Norbert’s gambit isn’t free. There are some brokerage fees involved in actually trading the stock.
Which pennies are worth squeezing?
So what do you guys think? Are these services that you’d be interested in using? Or will you probably just stick to the convenience of your bank? Are any of you using any services that I didn’t mention?
Personally, Norbert’s gambit seems like a bit too much hassle for me right now, but using a foreign exchange company like Knightsbridge just makes sense.
Maybe with a bit more research I’ll change my mind.
What do you think?
Want to start getting control of your money? How can I help?
Chris Enns
Financial Planner/Opera Singer
Money never came naturally to me. In fact... I was a bit of a disaster. I remember (very clearly) what it feels like to be 'financially out of control'.
And honestly, I still get stressed about money... that doesn't stop... the difference is that now I have the tools to deal with that stress.
And those tools are what's made it possible for me to build a life full of the things I want: art, creativity, travel, family and more.
If you want to start getting control of your money I'd love to help. You can start with THIS QUIZ, visiting my GETTING STARTED PAGE or by checking out my SERVICES page.
I’m trading currencies with Knightsbridge for 2 years now: they are super easy to deal with and I can confirm that it’s a 100% safe. The first time I was a bit worried, too, since it takes up to 5 business days to receive your money back, but all legit and good.
They always have a (much!) better rate than my bank, it’s absolutely worth it, so set-up a USD account and then exchange with them to CAD, leave your vampire bank behind as much as you can.
Thanks for explaining it in an easy way. We moved from Canada to states last year and are planning to purchase a house here. With the exchange rate so bad for Canadians now, we will loose money from converting.
Company like Knightsbridge seems to be the best way to do it, I am still worried about the security of my money especially when it is large amount for down payment.
Anyone has similar experience with them?
I do not understand this at all I have $36,000 coming from Tim Horton stock (canadian money)which I need to convert to us funds so I lose money all around? and pay a fee to boot?? can you help me thru this knightsbridge sound like the way to go almost ready to forget it and let my sons deal with it after I am dead and buried thank you for any help you can give.
https://www.ratehub.ca/blog/3-credit-cards-with-no-foreign-exchange-fees/
Chris:
Out of these three, roger seems like a bogus card. Marriott charge 120$ and Amazon discontinued their visa? so any other option with no fee, and no transaction fee … any suggestion.
Yes, I heard about Knightsbridge and Canadianforex, will check both out to get a better rate. I’m sure they are way better than any banks in Canada.
Please suggest, Thanks for great post, very informative.
Thanks for the tips; I travel back and forth frequently and try to minimize the impact of sticky fingered banks.
I have a family member in Canada, I’m resident in the US. We both have bank accounts in each country. We both make a no-charge transfer to the other’s account in the same country, and use the daily exchange rate to calculate the amount. It works for me to have cash when I’m in Canada, and for her to pay her US bills.
Hi Chris,
I have $30,000 USD I currently live and work in Canada and I want to invest. Would you suggest to change it all to CAD and invest or leave half in USD?
Thank you so much for the info on the no foreign exchange credit card. I have an amazon rewards credit card, which I didn’t bring with me. I had no idea about that perk. It’s my understanding from what I read that if I use my card in the U S that I would only be charged the bank of Canada rate at the time of use, is that correct? I know of Knightsbridge and the CSA, but using the Amazon card seems pretty enticing. Thanks again , I will share this on Facebook.
Thanks Barbara. Yes, you won’t pay any foreign exchange fees… I can’t guarantee that you’ll get the bank of Canada rate though. Often credit cards and banks have their own exchange rate that they use (and it usually includes bit extra for them). You can call them and ask them what their rate is and compare it to the BoC rate if you want to get a better idea.
Bitcoin folks. And it will go up in value.
I use Forex (similar to Knightsbridge), very professional services, very helpful. You set up an account with them, go on-line, select what u want to buy, pay them thru my RBC account as a bill “payee” and they deposit the funds directly to my US Bank acct. Fee is $15.00 for small amounts.
Awesome. Thanks for that Susan. There are a bunch of foreign exchange brokers that don’t mind dealing with small amounts, and it’s good to know the ones people have had positive experiences with.
I am by no mean an expert in money exchanges (or anything else for that matter:).
A few facts:
I looked up a few places that exchange money (banks + 1 exchange currency company) today 2016/10/29
COMPANIES PRICE THEY BUY PRICE THEY SELL
Desjardins 1.3051 1.3774
RBC 1.2923 1.3724
NB 1.3110 1.3660
Devises Mondiales 1.3235 1.3545
While Bank of Canada says 1.3385
Note those rates are for CASH(actual bills)! Else is more expensive!
Banks seem to have around 7% difference(so more like 3.5% ‘fees’ buying – or selling)
The exchange currency company is much more advantageous at 3%(so more like 1.55 fees)
Just a thought:
If I would like to buy US$, could I find someone who would like to buy CDN$?
We could use the Bank of Canada daily rate (1.3385 today)!
No ‘Fees’!
But how safe?
I now hear you say “we could start an exchange service”
someone would have to work there, He would have to be paid. Plus a store of some sort to be rented!
We would have to add a ‘Fee’ to pay those.
Have a good day 🙂
Mark
You’re right Mark. There is a common sense element to this whole process.
There’s nothing wrong with fees. These companies (and even the banks) deserve to be compensated for the services offered.
But the consumer deserves to see those fees so they can make an informed decision on whether to use that service.
I just get a little bothered when they try to hide the fees, or worse… tell me there aren’t any fees at all.
Like you said… of course there are fees… and that’s fine… just tell me what they are.
Thanks for the comment.
Chris
I have the opposite problem. I have a canadian check for around $35K which I need to deposit in an estate account at Chase. How can I avoid the fees? Is there somewhere else I could set up a checking account where the fees wouldn’t be so high.
I am in the same position. We sold a little prairie home and have 25,000 sitting in a credit union. We have been taxed up the wazoo by Canada and now to bring the money into the US will lose much much more. Any ideas how to not lose so very much?
mleaver@gmail.com
Hey Mary and Michael,
You can use either of these techniques to transfer money from Canada to the US and save on the fees that the banks charge.
I just talked to Knightsbridge (just one example, there are other companies that do this) and they actually make it pretty simple. The process is the same as I mentioned above except that the transfer (#4) is free from a Canadian bank… so even less cost to you. Their customer service people are great if you have any other questions (man… that sounds like an endorsement… it’s really not… they’re just the company I use, and have had good experiences with).
Michael: if you do elect for this method, I would ask specifically about transfers from your credit union… as I’m not sure if the free transfer I mentioned applies to all credit unions.
Let me know if you have any other questions (or if I managed to completely miss answering your original ones)
Chris
I’m here to say that I wish I had paid more attention to this topic before I brought a sizable inheritance into the US from Canada. I would not have caught it because, like it details in Part 1, the bank was very vague about what it was actually going to cost. My family and I were watching the Canadian Dollar closely and timing the actual wire. The day it went through, I saw that it was a full 2 cents lower than it was supposed to be. I called my bank and they claimed that that was the exchange rate for the day. “No it was not,” I replied with heat, “I’m quite familiar with the markets and watch currency exchange rates frequently, and it was not the price they are claiming at any point today.” It was that “fee!” It took them quite a while to actually admit it. Still angry with myself about not researching it more carefully; cost me a lot of money!
Ugh. I’m so sorry Liz. That sucks.
It’s the nondisclosure that drives me crazy, the pretending that there’s no fee… so frustrating.
Thanks for the comment.
Thanks for the mention and the valuable guide!
It’s funny how it’s only when the CAD is way down that people suddenly care about the FX fees, when the banks/credit cards were still taking over 2% when it was high. Same with mutual funds: MERs seem a lot less noticeable when the market’s going up, but when we hit a rough patch that’s when people see what their advisor is charging (and doing in return).
It’s true. When things are good we don’t usually look for places to save… there’s ‘enough’ to go around.
Desperation breeds creativity. 🙂
So when things get tough, we all start to look for new solutions (also looking for someone to blame).
I recently used knightsbridge so I can attest to their services. With the loonie so low, I can’t stand the high rates the banks charge.
Seriously. It’s kind of crazy.
I’m a little late to the knightsbridge party, but I thought they had higher minimums… which they don’t.
Glad it was a good experience for you. How long have you been using them?