Are You Kidding Me?!

Banks Still Take Big Spreads On FX Transactions

For some, it is that time of year again: thinking about a warm weather vacation somewhere south. For me, I am heading to NYC (where I lived and worked for a number of years) for U.S. Thanksgiving to visit old friends and family. So for fun, I thought I would check in on the Canadian banks to see what they were charging regular folks to buy $US. 

Just for reference, the "spot" price on foreign exchange markets, the wholesale market, where a standard trade is about $5,000,000 (and the place where I began my trading career almost 40 years ago) is at about 1.3305 as I write this note.

That means that for every $1 of Canadian currency, you get $0.7516 of the U.S. version.

Like most Canadian banks, TD, as indicated above, wants to charge you 1.3641. That my friends is a mark-up of over 2.5% above the wholesale rate.  On $1,000 of Canadian Loonies, they are taking $25 of your hard-earned dollars.

For some that may not seem too daunting, but if you are going to be spending $10,000 of the Canadian stuff while you are away, that becomes $250. Not only that, it is a huge fee to pay in this day and age of transparency. No wonder banks are continuously making record profits.

How do you avoid this?

1) Open a $US chequing account at your favourite Canadian financial institution.

2) Get yourself a $US credit card (preferably with a travel award option, or other reward options).

3) Use your $US credit card when you are out of Canada and when you get your monthly bill, pay it off immediately, of course, but do so with the $US in your $US chequing acount.

4) How do you fill up your $US chequing account?

If you are a High Rock client, you just advise us to use $US cash that we have in your $US account with us. We always have $US assets that generate income from interest and / or dividends and we can electronically move it to your $US bank account within a couple of business days.

We always buy $US for our clients on the wholesale market (because we usually do it in bulk) and we tend to be somewhat tactical when we do so, adding when the $C strengthens.

Otherwise there are plenty of alternatives out there who will give you better than bank prices, just do a little on-line research.

Many Canadians have chosen to put their full faith and trust in Canadian banks and financial institutions because that has been the way that they have been taught (usually by the vast marketing efforts of those institutions).

That trust has become, obviously (as in the evidence above), very expensive (helps to pay all those advertising costs, I suppose).

I / we are of the lonely (but growing number of) voices trying to spread the word that there are alternatives to the old system and it may just be time for those of you who have not yet done so to explore the options and find some more efficient ways to manage your wealth.