Janine DeVault
Sandra MacGregor
Siddhi Bagwe
Whether you love to travel, fly overseas for work or just enjoy the occasional jaunt across the border, you may find yourself needing to convert your Canadian dollars into foreign currency — especially if you’re not packing an international credit card.
Knowing how to exchange currency and how to get the best currency exchange rates could save you a significant amount of time and money.
What is a currency exchange?
A currency exchange is a business that allows you to trade one country’s money for another country’s money, such as converting Canadian dollars to U.S. dollars.
In Canada, the common places to exchange currency include:
- Banks.
- Currency exchanges in shopping malls and tourist areas.
- Online through Canada Post.
- Online through an online currency exchange service.
- Foreign exchange kiosks in airports.
How currency exchanges work
Exchanging currency is a lot like buying an item, but in this case, you’re buying another country’s currency. You can exchange currency online or in person, depending on which type of service you use.
The amount of foreign currency for which you can trade your Canadian dollars depends on the daily exchange rate and any fees charged. You can generally look up exchange rates online, though the conversion rates and any fees charged can vary depending on the service you use.
Many banks offer currency exchange calculators on their websites. Note that these websites may also show “non-cash exchange rates,” that apply to conversions of things like cheques and bank drafts. These rates tend to be more favourable because of the cost and risk linked to the handling of foreign exchange.
Nerdy Tip: Before confirming a currency exchange, make sure you’re seeing rates for the type of transaction you wish to conduct.
How to find the best currency exchange rates
While some currency exchange services may appear to be free, you may still be required to pay a fee in the form of a “spread.” It is the difference between the price the bank or exchange service paid for the currency and the marked-up price at which they sell it to you.
The spread is essentially a fee buried in the conversion rate. Some services may charge an additional fee on top of the spread, which is why it’s vital to shop around before you exchange currency.
To get an idea of whether or not you’re getting a good rate, it’s smart to use a tool like the Bank of Canada’s Currency Converter. The converter will show you the average aggregated prices offered by financial institutions.
Remember that rates fluctuate often and do not necessarily reflect market prices because of the spread. However, knowing the Bank of Canada’s rate will give you an idea of whether you’re getting a fair exchange rate or not.
Banks and exchange services tend to offer better rates than the exchange kiosks you’ll find in airports and train stations. That’s because those kiosks have a “captive” tourist audience and don’t have as much need to be competitive.
Alternatives to exchanging currency
Two main alternatives to exchanging currency are using your credit card to make a foreign purchase or withdrawing cash from an overseas ATM.
Most credit cards in Canada charge a foreign transaction fee (usually 2.5%) on any purchase that’s not in Canadian dollars, including online purchases. That fee is on top of the conversion rate and spread your credit card uses to turn your foreign purchase into Canadian dollars. However, some credit cards don’t charge a foreign transaction fee, making them great options for travellers.
Using an ATM to withdraw cash at your destination is another option. However, it could come with extra costs, such as fees charged by the ATM provider. Also, your bank may charge foreign exchange fees, conversion fees, or out-of-network ATM fees.
Basic currency exchange tips
- Choose to pay in the local currency: Some stores and restaurants in other countries may give you the option of paying in Canadian currency, which is called “dynamic conversion.” Though it might seem counterintuitive, it’s a better idea to pay in the local currency. Otherwise, you’ll pay high conversion rates and additional fees if the overseas merchant converts a charge to Canadian currency.
- Avoid currency exchangers at airports and train stations: If you want to carry local currency, do your research beforehand to see whether it will be cheaper to exchange money before you go or wait and withdraw cash at your destination. However, watch out for the high fees charged by currency exchangers at airports, train stations and hotels.
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