Getting money to Canada for my kid’s college – Conversion Experience, Tips

My kid’s in college in Canada. Here’s what I’ve experienced when converting U.S. dollars (USD) to Canadian dollars (CAD).

  1. I want to find the best currency exchange rate
  2. I want to pay the least in fees for transferring the money and converting it

All banks are willing to exchange your U.S. dollars (USD) for CAD. However, using your bank (or any bank) to convert is almost always a bad idea because they pay lower exchange rates and often charge a per-transfer fee. (Don’t fall for “free wire transfers” offered by some backs that do business in both countries, because the exchange rates can still kill you.)

Exchange rates are like expense ratios for mutual funds – they are a hidden fee that can make thousands of dollars of difference during your child’s school years. The “exchange rate” that institutions pay varies widely.

If you are moving tens of thousands of dollars to Canada to pay for tuition and fees, that rate can make a big difference. Every penny difference in the exchange rate for a $10,000 transaction is a $100 difference in the amount that ends up in Canada.

The rate changes constantly.

Here’s what I’ve tried to do: Pay or move money through someone who moves a lot of money across borders – they generally will provide the best exchange rate.

Credit card companies move massive amounts of money across borders. If your college or university will accept a credit card payment, that’s almost guaranteed to be the best way to pay, but be certain to use a card that doesn’t charge fees for foreign transactions. Better yet, look for one that is a cash-back card. Mine pays a 1.5 percent cash “reward” for every transaction and does not charge any fees for foreign transactions.

Exchange Rates

As I write this post, the current exchange rate (according to Google) is $1.33481 CAD for $1 USD. How do you get close to that rate?

Credit Cards: VISA says that transactions today will get you $1.335466 CAD for every $1 USD. That’s right on the mark!

Banks: TD Bank doesn’t publish its rates for personal accounts, but is publishing this rate for its commercial customers: $1.2965 CAD to $1 USD. Right off the top, the difference in exchange rates on a $10,000 transfer between VISA and TD is $383 CAD. That’s a lot of text books.

Often, banks will also charge a wire transfer fee. TD charges $40 to send an international wire transfer! (They waive these fees when you have bank accounts in both countries – but don’t even bother looking into that unless you have enough money to pay into an account to avoid monthly account fees.) $40 is another $53 CAD less that you will have after your transfer. (Your institution in Canada may also charge a fee to receive the wire.)

International Money Transfer Businesses: There is a web-based company, OFX.com, that provides a no-fee transfer at rates slightly better than banks. At this moment, OFX is publishing an exchange rate of CAD $1.3217 for $1 USD. However, when I attempt to get a spot deal for $10,000, I am offered $1.3033 CAD.  For $5,000 USD, I am offered a rate of $1.3010.  (I have noticed that they scrape about 0.02 off their published rates, and give a better rate for larger transfers.)  So they still scrape off the top of the exchange rate (it’s how they make their money), but their rate is better than any bank I’ve been able to find.

Convert USD to CAD Options

  • Best option I found: Major credit card with no fee for foreign transactions. (My daughter’s school does not accept credit card payments for tuition, unfortunately.) Of course, this assumes you will be paying the credit card off immediately, before interest is charged.
  • Other good option: Major investment firms, such as Vanguard, enable you to convert currency at very good rates (like credit cards, they move a lot across borders). However, because of money-laundering laws, you need to get a notarized International Wire Service Form signed by the U.S. Consulate. That means you need to appear in person in the foreign country with the right forms. (And this requires an appointment! When I did this, I got the account numbers messed up because no one at my Canadian credit union or at Vanguard was that familiar with the process, and they left me guessing which number to use. I picked the wrong one, wasting a three-day trip to Canada – and a lot of money.)
  • My option: OFX.com. I’ve used them half a dozen times with no problems.

Ramifications

Using the conversion rates available at the time this was written:

$10,000 USD becomes …
VISA $13,354.66 CAD + $150 cash back
TD* $12,913.14 CAD ($441.52 CAD less than VISA – no cash back) 
OFX $13,033 CAD ($321.66 CAD less than VISA – no cash back)

*$40 wire transfer fee deducted before conversion

Look at this over four years:

USD over four years CAD conversion Fee / Cash Back Net CAD increase
(Net USD – fees * conversion rate)
$60,000 USD $80,127.96 +$900 USD
cash back
+ $21,027.96 CAD
$60,000 USD $78,198.00 $0 + $18,198 CAD 
$60,000 USD $77,790.00 -$140 USD
wire fees (4x$40)
+ $17,650.00 CAD

I usually watch the exchange rate (it’s moved up and down over the last three years) and try to wait until it’s well above $1.30 to move the money. (I’ve gotten lucky – it’s impossible to predict where it’s going to go.)

I send it to my Canadian credit union, which charges no fees for my accounts and no fee to receive the money. My daughter’s school allows me to pay the bills electronically using my credit union account – that’s something you’ll want to check on, too, although I am sure the school would accept a check.

 

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