2012 Best Currency Exchange Rates for Small, Medium & Large Amounts of Canadian Dollars

It's not quite 2012 yet, but I see the car dealers all have 2012 models out, so I think I'm allowed to play the same game too.

Currency exchange is, well, a very boring straight-forward industry, or at least it should be. There should be no reason for paying high fees at all, especially for liquid currencies like the CAD$ and USD$. Because it's easy for a company to sneak in fees, especially when you're stuck and need an exchange quickly, you need to do your due diligence on whomever you're dealing with, especially with larger sums of cash.

To check what the "real" exchange rates are, check out my article here with a bunch of forex rate sources, or just go to XE.net.

Small Amounts Currency Exchange ($1-$10000):

  • If you are (or become) a Scotiabank customer, and going to the US, consider using your Scotiabank debit card at a US Bank of America Branch. I believe you pay just a 1% or so currency exchange fee, and that's it, no other withdrawal transaction fees, it's as if you were using a Scotiabank ATM. There are other arrangements for other banks in other countries as well, check out the Global ATM Alliance Page. You could also get a Bank of America account in the US, as a Canadian, and use that debit card at Scotiabank ATMs in Canada to cheaply convert US$--->CAD$ Cash. Check out my experience getting a US Bank Account in the US.
  • Usually the small walkup currency exchange shops, like Guardian in Toronto, give better rates than the banks, especially for non-US$ transactions. In the past, TD has cashed US$ cheques for me into US$ cash, without a US$ account, and I held onto this cash for trips to the US, but you could take it to a currency exchanger of your choice.           
  • If you're exchanging less than $1000 in total, it's really a crapshoot to go anywhere other than your regular bank if you need US$, a 2% savings is $20, is that worth an hour or more of your time? Having said that, be careful, there was a time that Scotiabank (and none of the other usual suspects) was giving terrible rates on selling US$, maybe they were trying to build a war chest of US$?
  • Talk to your friends, some might have some US$ or EUR left that's just burning a hole in their pocket.        
  • XETrade is an electronic option where your wire/EFT/ACH money to them, and then they'll cut you a cheque or deposit it back into a bank account of your choice that you have in another currency.          
  • Unfortunately, it appears that PeerFX has shut down operations, too bad, I liked their idea.

Moderate Forex Transactions ($Thousands):

I'd look into what is called the Norbert's Gambit for larger USD<->CAD transactions, as it feels to me like one of the most secure currency exchange methods, without having to worry about the default of a currency exchange provider. The stock market is a very mature sector. There is a steep learning curve, but once you get the hang of it, it's rather quick and can be done without leaving your house. There are a lot of gotchas, so be sure to do your research. The nice thing is that, if properly executed, you're paying virtually no commissions except for two stock trade commissions. It's fun to know that you saved a ton of money, and had to only invest your time. It's very cheap, but there may be some point (probably in the $millions) where you'd start to significantly effect the price of a stock and perhaps cost yourself a few pennies per share if you don't break up your transactions enough. I have read of people using this method to buy US Real estate, so big $$$ transactions. The nice thing is that you could lock up your CAD$ in a historically stable cross-listed Canadian stock until you need it, and then hit the sell button to sell it to get US$ proceeds when you do need it.

Large Amounts ( High $Hundreds of Thousands+):

I'll admit that I have no experience in this field, so don't take any of this as advice to get the best rate, take it only as places to look when coming to your own conclusion. I would really play-off large banks for large currency exchanges. I'd get the best rate, and then call all the others to see if they'll make a better offer until doing so for further iterations would be fruitless. For very large amounts, you may be able to get trustworthy foreign banks involved, since wire transfers are not all that expensive. Consider speaking with your suppliers or buyers to see if they'll accept the currency you're trying to get rid of, they may have access to better rates, or need that currency that you want to get rid of, solving your problem.

Hedging/Forwards Contracts!

In general, I wouldn't recommend these, as they're basically insurance against some unfavourable event. Insurance companies make money by paying out less than they charge in premia. In other words, on average, you pay in more than you get out, unless you know that they're miscalculating your risk. Hedging/forwards contracts providers have to charge you more than they'll pay out, otherwise they won't be in business. As well, there are obvious counterparty risks, just who is providing this hedge/forward? If you can self-insure this risk, you'll usually come out ahead on the average, unless you, someone that needs currency exchange services, somehow knows more than a company that actually exchanges currencies and know that the return will exceed whatever premium you're paying the hedger/forward provider.

Watch Out!

Be careful with businesses that focus on currency exchange services, and especially those that are involved with other lines of business that aren't as boring and straightforward as pure currency exchange. Because margins have to be lower for them to compete with the banks, how well can they recover from a fraud, unscrupulous employee, or a bad bet made with the company's own money? How well segregated are their client and operating accounts? How would you know if they're telling the truth? Where are they based? Do they have some other traditional stable banking business to lean on if they hit a rut? The additional risk may be worth the savings, but do your due diligence. I'd personally be apprehensive about keeping funds in such a company, or getting a forward contract, but I might be okay doing a quick-in-quick-out exchange. Unfortunately, because, often, money sent to these firms likely doesn't have government deposit insurance, in the event of a bankruptcy, your client funds, even though segregated, may get used up to pay more senior creditors. Just read about Refco, or MF Global whose messes are still getting sorted out, to scare yourself straight.           
As with any service, always research the marketplace on a regular basis (how regular being defined by some equation that considers how often you're being charged, how long it takes to do the research and how much the market can change).

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