Over the past 10+ years I’ve done consulting primarily for US based companies. This has resulted in me being paid in US currency. This is both good and bad. The US dollar has gone up and down, but has mostly remained in a state where exchanging has yielded more Canadian dollars. Throughout the past few months I’ve been tweaking, changing, and fine-tuning my financial situation in an effort to both automate and maximize it. This has included re-evaluating banking packages, automating things so stuff is moved and paid automatically, changing future investments to have lower fees, everything. One part I looked at early on was my currency exchange.
Doing the math I was astounded at how much of a difference there is between both banks and foreign exchange brokers. I knew they’d be different but the convenience that banks bring is not worth it. The rates below illustrate the difference:
Note: Rates are for non-cash transactions as of June 8th, 2015. For both XE and VBCE I used their online rate which is the market rate and their own spread. Companies are ordered from worst rate to best rate.
Selling USD, Receiving CAD
- RBC, 1.00 USD = 1.1979 CAD
- TD, 1.00 USD = 1.2028 CAD
- Scotiabank, 1.00 USD = 1.2055 CAD
- TD Preferred1, 1.00 USD = 1.2108 CAD
- Tangerine, 1.00 USD = 1.219 CAD
- HSBC, 1.00 USD = 1.22115 CAD
- XE, 1.00 USD = 1.2231 CAD
- VBCE, 1.00 USD = 1.2276 CAD
As you can see RBC is actually the worst here with a rate that is 0.0297 CAD less than VBCE.
Buying USD, Paying CAD
- RBC, 1.00 CAD = 0.7829627 USD
- Scotiabank, 1.00 CAD = 0.784 USD
- TD, 1.00 CAD = 0.787898 USD
- HSBC, 1.00 CAD = 0.787929 USD
- Tangerine, 1.00 CAD = 0.79114 USD
- TD Preferred1, 1.00 CAD = 0.791514 USD
- XE, 1.00 CAD = 0.7938 CAD
- VBCE, 1.00 CAD = 0.79765 USD
The only difference between this and the other direction is that TD Preferred gives a better rate in the CAD->USD direction. Regardless the difference between RBC and VBCE is 0.0146873 USD.
I personally suspect that TD Preferred is better as their borderless plan caters to people who travel to the US often.
Both Bank of Montreal and CIBC do not post non-cash currency exchange rates online. I have excluded them from the above lists as a result.
Putting The Rates Into Practice
Assuming $1000 USD on an exchange into CAD you would get an additional $29.70 CAD using VBCE instead of RBC.
Assuming $1000 CAD on an exchange into USD you would get an additional $14.69 USD using VBCE instead of RBC.
Do this often enough and the money adds up.
Banks generally have higher spreads (so they make more money off you) on their currency exchange but with that you get convenience and speed. Currency exchange is instant with a bank, there is no waiting. The odd man out though is Tangerine which was the best out of the banks in both directions. They are willing to make less on their currency exchange and offer a competitive rate. Just like other banks the exchange is done instantly.
Foreign Exchange Broker
Foreign exchange brokers specialize in currency exchange. Online ones offer various methods of funding such as pre-authorized withdrawal and offer a quote which is generally valid for 30 seconds. After the 30 seconds is up the rate may or may not change (depending on the market). This is unlike the banks where their rates generally do not change throughout the day.
XE is one of the largest foreign exchange brokers in the world. You’ve most likely visited their site to do a quick currency conversion but they also allow you to do the actual currency exchange. You sign up, provide bank information, and allow them to do a soft hit on your credit to verify your identity. Unlike VBCE below there isn’t much (if any) interaction with real people.
Before processing your exchange they withdraw the funds from your source bank account. Once verified the exchange occurs and after a day or two the money is then deposited into your destination bank account. From start to finish a currency exchange can take up to a week. The rate, though, is better than the banks. The inconvenience comes from having your money in a state of limbo for up to a week.
VBCE (Vancouver Bullion & Currency Exchange) showed up on my radar as a result of reading the redflagdeals.com forums. They operate on the west coast of Canada and provide in-person exchange. Over the last little while, however, they’ve gotten into online currency exchange using a product they call “VBCE Online”. The nice thing about them is they extend credit to you which allows the currency exchange to occur pretty much overnight. It’s not as quick as a bank which is instant, but it’s pretty close.
The signup process for VBCE Online is quite involved and requires filling out an application, accepting a hard credit check, and speaking to a real life person on the phone. The person on the phone isn’t scary though. They are quite pleasant and afterwards become your point of contact if you have any questions or concerns. This process is a result of the compliance requirements set out by FINTRAC and their banking partners. After my application was accepted and my account was set up I asked about adding another bank account. My point of contact took care of it swiftly and after 10 minutes had it all done. I have nothing but great things to say about their customer service.
The exchange also pretty much occurs overnight if you get it in early enough. For my first exchange I did it on a Thursday in the evening so it was submitted on Friday and all settled on Monday (yay banking!).
Personally I plan on using VBCE Online for my USD->CAD exchange. I get the best rate I can find and my money is not tied up for long. For CAD->USD exchange this isn’t really applicable to me. I keep a small amount of USD for the times where I need it.