Currency conversion - CAD to USD and vice versa

Currency conversion is one of the things folks want to know once in Canada. Even if you didn't immigrate from US it might be something good to know. I struggled a lot to find out the best option to do this conversion. So thought of sharing this with you.

Disclaimer - We are only stating our experience and recommending based on the research we did. We are not financial advisors and are not marketing for any financial firm.

It is very common for companies to have a US headquarter and as a result you could get your salary in USD. Almost all banks offer a USD currency bank account. (Read my other post for the same) However, you would need CAD for your daily usage in Canada.

Think of your investments in a Canadian brokerage firm. These firms allow investments in CAD and USD currency. Many people invest in both Canadian and US stock markets. So, you would want to know the best way to convert your CAD to USD and vice versa.

Two things to watch out 

1. Exchange rate - You don't get the same rate with every provider. 
1. Some of them have rounding rules. So if the real exchange rate (USD to CAD)  is 1.33 then they might just give you 1.3. 
2. Commission Fees - For every transfer, you are charge with commission fees. 

Some providers give you higher exchange rate but charge commission to make up whereas others do vice versa. So you need something that gives you the most optimal experience.

Option 1 - Xoom

I had used Xoom before for transferring USD to my Indian bank account and so it was something I tried first. Easy to register and more currencies are supported than CAD/USD. They charge transaction fees (depending on whether you use card or bank) and round as well. 

1. PROS - Very easy process and you get the money instantly. Good in case of an emergency.
2. CONS - Not the best exchange rate and the impact is higher when you transfer larger amounts.

Option 2 - Norbert's Gambit

This has proven to be one of my biggest learning.  You need to have an investment account for this one. 

What it is - If you are converting from USD to CAD then you would purchase an ETF - DLR.U.TO.  This is an ETF composed completely of cash equivalents and traded in USD currency.  So a low risk ETF with very less volatility. For simplicity if the price of a single quantity of dlr.u.to is 10 USD and you want to convert 1000 USD then you would purchase 100 quantity of that ETF.  You would then call your investment firm to journal dlr.u.to to dlr.to. What this means is that your investment firm would simply take the quantity you bought and assign them to dlr.to. This will take a few days. But now, you will see DLR.TO instead of DLR.U.TO.  You can then sell dlr.to etf to get Canadian cash.  

For converting cad to USD,  buy DLR.TO ETF with Canadian dollars,  have your investment firm journal it to DLR.U.TO.  After a few days, you can sell DLR.U.TO and get USD.

PROS -

1. You get better rates.

2. Most investment firms offer these ETFs.  So, to specifically convert currencies,  you don't have to open a new account. 

CONS - 
1. You will have to wait a few days for the process to complete. 

To put things in perspective,  I got an exchange rate of 1.32 with Norbert's gambit and the fees I paid was just about 8 CAD to convert 6000 USD. I had tried Xoom before and it gave me an exchange rate of 1.3 CAD. So with Norbert's gambit,  I was able to get 112 CAD more. This might sound complicated for a few folks but once you have done it, you wouldn't regret it.

Ultimately,  you should know that there are multiple options. You can use what works best for you.