Converting USD to CAD

[tulak]

I like the idea of keeping things in the US. I'm leaning towards that, but I don't have a good understanding of how buying a Canadian bank stock is the equivalent of having a stash of Canadian dollars (or equivalents).

This is something I need to figure out. I need to spend some time modeling this to get a better understanding of how it works.

Do you have an account at Schwab? If so, you could give your son an ATM card and he could withdraw from a US account without exchange or transaction fees. He wouldn't need a bank account there. Then all you would need is to find a way to pay the University costs.

Yes, I have a Schwab account and use it for all cash withdrawals, at home and internationally. You're bringing up the 2nd part of the equation: how can we get him money when he's in Canada. That's an easier problem to solve. Assuming the Schwab account is still around over the next 2-6 years, he could withdraw cash from an ATM. To make it a bit easier, he could open a student account (no fees) at a Canadian bank, withdraw cash using his Schwab card, and then deposit the money into his Canadian account. This way he'd have a local debit card, which might be better to use than a US debit card (he'd have a chip/pin card, etc) and he wouldn't have to carry cash all the time.

We could have him do this for his tuition too, but that'd be a tad extreme.

To me when you say you're trying to lock in current CAD value, you're exactly speculating that the CAD will appreciate.

Not really. I don't care if CAD goes up or down. What I want to do is lock in at current values. If it goes down, all the better. Then when I have to pay in a year it'll be cheaper. And if it goes up, I'll still lose out, since I won't have the full cost of tuition hedged in CAD.

One other possibility depending on how much total you are looking at is Canadian Dollar Travelers Checks which come in $500 cad denominations. Assuming your son opens a bank account where he goes to school at a bank there should be no problem cashing them. You do have a bit more than 1% of up front fees.

At this point you'd be better off opening a bank account in Canada. You'll still incur the fees, but you might be able to manage it better. Plus, you'll be able to earn interest on your cash.

 

[meierlde]

Re #26 the only fees the travelers check route have are the money conversion fees and the issue fees. There are no ongoing fees and the checks remain good until used. (unless banks in Canada charge fees for cashing the checks). You wont earn interest. true but in todays market how much is that worth? (checking a 2 year cd in canada is about .55% pa.)

 

[tulak]

Re #26 the only fees the travelers check route have are the money conversion fees and the issue fees. There are no ongoing fees and the checks remain good until used. (unless banks in Canada charge fees for cashing the checks). You wont earn interest. true but in todays market how much is that worth? (checking a 2 year cd in canada is about .55% pa.)

I haven't done a lot of research here, but it looks like you can get 1% without too many issues. The Scotiabank Savings Accelerator Account pays 1% with no monthly fees: Savings Account Interest Rates | Scotiabank. But getting the money there is a challenge.

 

[canuck5]

I have a TD (Canada Trust) account and live in the USA, with dual citizenship. I have an account there that is set up in US dollars and one in Canadian dollars. You can transfer between both easily, when the CDN dollar is high and vice versa. I set mine up in Canada, but there probably is no reason why you can't set one up, online, in the USA, with TD or any of the other major players.

In 1982, the exchange rate was ruffly -30 cents on the dollar. In 2012, it actually was +5 cents. Today it's -23 cents and probably "is" the average over the last 30 years.

I think your goal needs to be to try to keep a dollar a dollar. In my Canadian savings account, I'm making a little under 1%, but depending on the exchange rate the net effect could make that go away very quickly.

 

[Ian S]

I like the idea of keeping things in the US. I'm leaning towards that, but I don't have a good understanding of how buying a Canadian bank stock is the equivalent of having a stash of Canadian dollars (or equivalents).

The Canadian banks are based in Canada and their Toronto stock exchange shares are priced in CAN$$. But for the convenience of US investors, they are also listed on the NYSE and priced in US$$ there. The price difference you'll see between the shares on the two exchanges is due essentially to the difference in the exchange rates. So, if shares of TD in Toronto stay constant on a particular day but the loonie appreciates against the US$, then the value of the shares on the NYSE will rise.

So the question is how risky are the Canadian bank stocks and what kind of fluctuations might occur. Well, they are stocks and so they will go up and down with the general market. But they are also tied to the Canadian economy (with some US and global exposure as well). That economy - and the loonie - are very dependent on oil prices. You are looking out 2 years or so until your son will be in the Canadian university. If you think oil will be higher then than today, you can count on the loonie being higher and the Canadian bank stocks doing very well. If oil stays the same or drops, then the loonie and the Canadian banks aren't apt to do that well. But there's almost no likelihood of those banks reducing their hefty dividend payouts so that's some protection against downward fluctuations especially if you reinvest dividends. Another option might be preferred shares of those banks but I don't think they are available on the US exchanges. Perhaps they could be bought on the Toronto exchange by your US broker. Their prices are less apt to fluctuate and they offer a good dividend payout.

 

[tmm99]

But there's almost no likelihood of those banks reducing their hefty dividend payouts so that's some protection against downward fluctuations especially if you reinvest dividends.

Great posts, Ian!

I just love those yields on Canadian bank stocks. They are so much better than the US counterparts. You also mentioned somewhere that the bank regulations in Canada are much more strict than in the US (which I've heard from other sources also), so that is definitely a plus. I have been setting up a small group Canadian dividend generating stocks now (so far I have 10 or so companies in the mix - banks, telecomm, energy and insurance), and I do have TD and RY in the mix so far, and I am planning to add CIBC.

 

[tulak]

I have a TD (Canada Trust) account and live in the USA, with dual citizenship. I have an account there that is set up in US dollars and one in Canadian dollars. You can transfer between both easily, when the CDN dollar is high and vice versa. I set mine up in Canada, but there probably is no reason why you can't set one up, online, in the USA, with TD or any of the other major players..

Don't you pay a fee when converting from US to Canadian dollars?

Great posts, Ian!

I just love those yields on Canadian bank stocks. They are so much better than the US counterparts. You also mentioned somewhere that the bank regulations in Canada are much more strict than in the US (which I've heard from other sources also), so that is definitely a plus. I have been setting up a small group Canadian dividend generating stocks now (so far I have 10 or so companies in the mix - banks, telecomm, energy and insurance), and I do have TD and RY in the mix so far, and I am planning to add CIBC.

+1

Ian, your posts have been great. I've started modeling this to get a better idea of what to expect, but so far I like what I see. I've modeled this back to 2007 and it's easy to see the effect of currency fluctuations. I'm still trying to better understand the normal stock volatility part and I still need to account for dividends. Overall though, excluding 2008, the volatility looks reasonable. I've been modeling CM (CIBC) and I'm leaning towards buying some and calling it good. I can also do this in a tax deferred account, so all the better.

 

[Ian S]

Don't you pay a fee when converting from US to Canadian dollars?



+1

Ian, your posts have been great. I've started modeling this to get a better idea of what to expect, but so far I like what I see. I've modeled this back to 2007 and it's easy to see the effect of currency fluctuations. I'm still trying to better understand the normal stock volatility part and I still need to account for dividends. Overall though, excluding 2008, the volatility looks reasonable. I've been modeling CM (CIBC) and I'm leaning towards buying some and calling it good. I can also do this in a tax deferred account, so all the better.

I think there are always fees associated with converting currencies - everyone wants their cut I guess. One of the reasons I have a Canadian bank account is that I anticipate a significant future inheritance in CAN$$. I want a place to park the funds in the event the exchange rate is adverse at that future time. I'm also interested in minimizing currency transaction fees once I decide to bring the funds to the US so I'm looking into what the alternatives might be.

Thank you (and tmm99) for your kind words. I have owned BMO with dividend reinvestment since the early 1990's and have had splendid capital gains - starkly different from my investment in BofA LOL! Because I was born and grew up in Canada, I have always had a penchant for investing at least some funds there. I have added some RY recently. May add some others at some point as I'm increasingly interested in solid dividend stocks for the long run. If you keep them in a tax deferred account like an IRA, they don't even apply the Canadian withholding tax. Although, in a taxable account you can claim a tax credit for at least some if not all of what's withheld.

 

[Davis65]

TD has branches through the US Northeast. Harris Bank in the Midwest is connected to Bank of Montreal, so they may have something. Centura in the southeast used to be owned by Royal Bank, so they may have a Canadian $ account still. I don't know of any West coast connections.

 

[Danmar]

RY just closed its deal for City National Bank in California. Believe City National is the largest bank in Los Angeles. They will eventually offer CDN dollar products there I would think. Agree with comments about the Canadian banking system. It's a very well run oligopoly which has resulted in excellent investment returns for many decades. Also, was a very rewarding place to work.

 

[languagefan]

I don't know if transferWise works in North America or not, but you get fantastic rates exchanging GBP to Euro here in Europe. Worth checking out.

 

[canuck5]

Don't you pay a fee when converting from US to Canadian dollars?



+1

Ian, your posts have been great. I've started modeling this to get a better idea of what to expect, but so far I like what I see. I've modeled this back to 2007 and it's easy to see the effect of currency fluctuations. I'm still trying to better understand the normal stock volatility part and I still need to account for dividends. Overall though, excluding 2008, the volatility looks reasonable. I've been modeling CM (CIBC) and I'm leaning towards buying some and calling it good. I can also do this in a tax deferred account, so all the better.

Yes, you do pay a % to exchange the funds, but you do earn a little interest. My thoughts were that since this was relatively short term "needed" money, it might be easier to only have to "watch" the exchange rate vs a multitude of other variables and keep a dollar worth a dollar. Just less risk and less to understand. The Canadian dollar has moved from $1.05 down to $.68 and inching back up again, over the last 5 years and it affects everything.

 

[tulak]

Slight change of plans, at least maybe. I was about to buy some CM on Monday, when Sunday night DS mentioned the idea of going in-state instead. He's still applying to Canada, but I think this went from choice #1 to #2. I still think I need to lock-in at least some Canadian dollars at the current rate, in case choice #1 doesn't pan out. Timing could have been better though, since everything has gone up this week.

For those that are interested, I created a new thread with more info: http://www.early-retirement.org/forums/f28/university-living-costs-is-it-worth-it-81612.html

Thanks for all the advice here. Regardless of how we proceed, this thread has a lot of good info which I hope others find useful.

 

[tulak]

I bought some CM and BNS this last week. I'll probably buy a little bit more over the next few weeks on market dips.

At this point, I don't know if a Canadian education is in DS's future, but it's still a possibility so I need a little bit of insurance.

Thanks to everyone for the advice.