As last year went on and the dollar kept heading farther south, the ins and outs of U.S. banking for Canadians and how to get the best exchange rate were hot reader topics.
Millions of Canadians take a winter break in the U.S., and about 750,000 own property there. Cross-border shopping is just 90 minutes away. So you care.
There is no way to beat a 72 cent dollar except to be patient. But there are ways to reduce fees and the hassles, and give yourself control of the timing of your cash conversions. Here are answers to your most common questions:
Is a 72 cent dollar normal?
No, but neither is a 92 cent dollar, which is where the exchange rate was 18 months ago. Over the last 25 years, the loonie has averaged 81.46 cents (U.S.), according to the canadianforex.ca web site. At the moment, we’re at the low end.
Will the dollar recover?
Probably. It moves with commodity prices and for now oil and metals are in retreat. But take heart. The loonie gradually rose from an all-time low of 61.98 cents (U.S.) in 2002 to briefly hit $1.10 in September 2007.
Why is The Toronto Star’s written exchange rate different from the rate I get?
We quote the mid-market rate, which is the rate banks use to buy and sell currency among themselves and offer their best business customers.
The Bank of Canada’s online currency converter calculates this cash rate for about 60 currencies.
We use the mid-market rate because it is the one used to set all others. The rate you get depends on how much you convert and where you go, but consumers typically pay 4 per cent more than the mid-market rate.
Is my bank the best place for foreign exchange?
No, but it is the most convenient. For small sums, it may not be worth the trouble of going elsewhere. Snowbirds and frequent travelers can save a few points with foreign exchange specialists, including the Canadian Snowbird Association and Knightsbridge Foreign Exchange. Kantor Currency Exchange has several storefronts in the GTA.
I have a U.S. dollar account at my bank. Why can’t I make online payments in the U.S.?
With our familiarity with all things American, we tend to forget the U.S. is another country. The border is an international boundary. Each country has a different banking system and different laws and regulations.
Can I write a cheque on this account to pay a U.S. bill?
Yes, but there’s no guarantee the store or utility will accept it, although they usually do.
American dollar accounts at Canadian banks let you move Canadian funds into them at the going exchange rate and write American-dollar cheques. The rub for places like Macys is that the money is coming from a foreign country. That’s a credit risk for them. If your cheque bounces, how would they collect?
What about opening an account in the U.S. at a Canadian bank?
TD and RBC are the two Canadian banks that allow you to hop over the fence, so to speak, with accounts in the U.S. at banks they own. This puts you inside the U.S. banking system.
These accounts are most suitable for those who own property in the U.S., or who spend a lot of time there. You can set up online bill payments and pay such things as real estate taxes and cable and telephone bills.
Are these accounts easy to use?
They aren’t as easy as the banks would have you believe. The online interfaces are awkward, because you have to bank in two countries.
You can’t do some of the things we take for granted. For example, a U.S. ebill paid by RBC Bank (the Royal Bank’s U.S. subsidiary) creates a cheque that is mailed. There’s no etransfer. Nor can your cousin in Boston direct-deposit birthday money into that bank. She must mail you a cheque.
Does a U.S. dollar credit card help avoid fees?
Yes. All big banks offer U.S. dollar credit cards, which can be linked to a U.S. dollar chequing account. These cards avoid the 2.5 per cent transaction fee that goes on top of the exchange rate when you use your Canadian dollar credit card. You still pay the exchange.
If you’re an occasional crossborder shopper, this may work for you.
Can I ever avoid the exchange rate?
No, but you can control the timing of your money exchanges. If you deposit U.S. cash or cheques into a U.S. dollar account, they go in dollar for dollar. The conversion happens at a time of your choosing.
If you own U.S. stocks, the dividends can be directed into these accounts dollar for dollar. The Internal Revenue Service (IRS) withholds 10 per cent against U.S. taxes, but as Canada has a tax treaty you get that back when you file your income tax.