Avoid Hidden Currency Exchange Rate Fees and Save Big
There are two factors that determine how much your Canadian credit card is charged when you make a purchase in a foreign currency:
- The daily currency exchange rate set by your card processor, i.e. Mastercard, Visa, or American Express. This is the difference between the value of the Canadian dollar and the value of a foreign currency on any given day.
- The foreign transaction fee charged by your card issuer, e.g. RBC or TD. You might not always notice these fees on your credit card statement, as many issuers automatically include them in the purchase amounts charged to the card, rather than listing the fees as separate line items.
Does one card processor offer lower exchange rates than the other? How do the exchange rates and foreign transaction fees affect your bottom line in the long run?
Visa, Mastercard and Amex Exchange Rates Compared
To figure out who charges the lowest fees, we looked at the exchange rates posted online by Visa and Mastercard. The American Express exchange rate is not typically made public, but we reached out to them directly and they provided us with their rates.
We’ve included the 2.5% foreign transaction fee that the majority of Canadian credit cards charge, but have listed in brackets what the base exchange rate is. American Express currently does not offer a credit card in Canada that waives the foreign exchange fee.
We’ve also listed the Bank of Canada Exchange and the US Federal Reserve rates for reference.
USD - CAD
EUR - CAD
Bank of Canada
US Federal Reserve
Based on the data, the Visa exchange rate is the highest and the Mastercard currency conversion rate is the lowest. American Express sits in the middle of the two. All three card processors do charge a slight markup compared to the Bank of Canada.
You’ll also notice that the Bank of Canada rate is nearly identical to the US Federal Reserve rate since both are government agencies and represent the official exchange rate between the two countries.
How Does the Exchange Rate Affect Your Bottom Line?
The graphs above show how much you would pay in Canadian dollars if you were to charge $1,000 USD to your Canadian Visa, Mastercard, or American Express credit card with and without foreign transaction fees. When looking at the base rates, there’s only 58 cents separating Mastercard, which has the lowest fees, compared to Visa, which has the highest fees.
However, when using a Visa without foreign transaction fees, you would save $33.32 compared to a Visa that does charge the fees. With Mastercard, you would save $33.31.
American Express does not currently have a credit card in Canada that waives foreign exchange fees, so you’ll always be paying the additional 2.5% fee if you use Canadian Amex cards.
In these two graphs, we looked at what the conversion works out to if you were charging €1,000 to your credit card. Again, the base exchange rates between Visa, Mastercard, and American Express are quite minor with just $4.97 separating them.
However, you can again see what a difference there is when using a credit card that doesn’t charge those foreign exchange fees. You’d save $38.96 with a Visa or $38.83 with a Mastercard.
Are You Getting the Best Currency Exchange Rate Possible?
Although the exchange rate fluctuates on a daily basis, the markup that Visa, Mastercard, and American Express charge compared to the Bank of Canada rate is consistent.
Based on the straight math, you would pay the least exchange fees with Mastercard, but it’s pretty minimal and likely won’t make a huge difference unless you’re charging $10,000+ USD to your credit card. Even if you spent that much you’d only be saving $5.80 compared to Visa and $3.90 if you used an Amex.
That being said, if you were to compare what you’re charged by your credit card provider to what banks or foreign exchange offices will charge you for exchanging currency, you’re likely getting the best rates by using your credit cards.
Banks and exchange offices set their own individual rates and the markup can be quite high depending on the currency you’re getting. Generally speaking, if you’re trying to get USD from your bank, the rates will be comparable to what your credit card charges, but if you need a currency that’s not commonly held such as the Turkish lira or Brazilian real, there could be a markup of up to 10% (!).
Other Ways to Save on Foreign Currency Purchases
‘No Foreign Transaction Fee’ Credit Cards
|Home Trust Preferred Visa||Scotiabank Passport Visa Infinite||Rogers World Elite Mastercard
|Foreign Transaction Fee||0%||0%||2.5%|
|Foreign Currency Cash Back Rewards||1%||1%-2%||4%|
|Domestic Cash Back Rewards||1%||1%-2%||1.75%|
Since the exchange rate differences between Visa, Mastercard, and American Express are relatively minor, the best strategy for saving money on purchases in foreign currencies is by using one of the cards that don’t charge foreign transaction fees. These cards waive the usual 2.5% exchange fee or give you cash back on your foreign purchases, which can make up for the fees.
Home Trust Preferred Visa
If you’re looking for a straightforward credit card that has no foreign transaction fees and no annual fee, then the Home Trust Preferred Visa will likely appeal to you. You’ll earn 1% in cash back on all your purchases and the card also comes with a roadside assist membership. It should be noted that this card has a daily limit of 10 transactions, so it’s not a good fit for those who make a lot of purchases.
Scotiabank Passport Visa Infinite
The Scotiabank Passport Visa Infinite is perfect for those who travel often and like to earn travel rewards, but don’t like to pay foreign transaction fees. You’ll earn two Scotia Rewards points per dollar spent on eligible grocery, dining, entertainment, and transit purchases, while all other purchases earn one point per dollar spent. There is an annual fee of $139, but there’s also a signup bonus of 25,000 points ($250 value) when you charge $1,000 to the card in the first three months. In addition, you get six annual PriorityPass airport lounge access passes and a comprehensive travel insurance package.
Rogers World Elite Mastercard
Although the Rogers World Elite Mastercard technically charges the 2.5% foreign transaction fee, it simultaneously generates 4% in cash back on any purchases made in a foreign currency. This means foreign currency purchases end up getting 1.5% cash back after the foreign transaction fee is factored out. Rogers products or services charged to this card will earn 2% in cash back while all other purchases made in Canadian dollars will earn 1.75%. The card also comes with a respectable amount of travel insurance, but it only covers you for 10 days.
Prepaid Foreign Currency Cards
With prepaid foreign currency credit cards, you can load your credit card in advance with funds. This is advantageous since you’ll know exactly what rate you’re paying and you can take advantage of any dips in the exchange rate. Prepaid cards are safe since they use PIN technology and are never directly connected to any of your bank accounts.
CIBC AC Conversion Visa Prepaid Card
If you like the idea of using a prepaid card while travelling, the CIBC AC Conversion Visa is one of the top choices available in Canada, as it can be loaded with up to 10 different currencies. This allows you to make purchases in the local currency in 45 different countries. You can still use the card in other countries, but you’ll pay an additional exchange fee. Loading your card with new funds is done via your smartphone, tablet, or online, so you should have no issues managing your account while travelling.
USD cards can be useful for those who make frequent trips to the U.S. or make many purchases in U.S. dollars. Since the card has USD as the base currency, you don’t get charged any additional fees when you charge a purchase in USD. However, when it comes time to pay your bills, you’ll need to have USD available, otherwise, you pay a conversion fee when paying your bill with Canadian dollars.
BMO U.S. Dollar Mastercard
It doesn’t matter if you’re shopping in the U.S. or making purchases online in USD, the BMO U.S. Dollar Mastercard won’t charge any foreign transaction fees. You won’t earn any points or rewards with the card, but you do get extended warranty and purchase protection. The card does come with an annual fee of $35, but it’s waived as long as you charge at least $1,000 USD to the card each year.