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, e.g., 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?
In This Article:
Visa, Mastercard and Amex Exchange Rates Compared
To figure out who charges the lowest fees, we looked at the exchange rates posted by Visa and Mastercard. The American Express exchange rate is no longer made public, so for the purposes of this article, we’ve given estimated rates based on past precedent and reports from Amex cardholders.
The Bank of Canada’s exchange rate is listed as a point of reference to indicate how much each processor marks up the exchange rate. Figures are averaged from daily exchange rates between July 19–23, 2021, and July 26–30, 2021.
|1 US Dollar (USD)||1 Euro (EUR)||1 pound sterling (GBP)|
|Bank of Canada||1.2584 CAD||1.4860 CAD||1.7356 CAD|
|Visa||1.2652 CAD||1.4925 CAD||1.7433 CAD|
|Mastercard||1.2643 CAD||1.4921 CAD||1.7428 CAD|
|American Express||1.2644 CAD (estimate)||1.4924 CAD (estimate)||1.7431 CAD (estimate)|
Based on the data we pulled for these three currencies, the Visa exchange rate is highest and the Mastercard exchange rate is the lowest; estimated rates for American Express sit between the two.
But ultimately the differences between the three are quite marginal. All three card processors do charge a slight markup compared to the Bank of Canada’s, with Visa’s markup the highest at between 0.44%–0.54%, depending on the currency exchanged.
The graph above shows 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 just the base exchange rates (no foreign transaction fee), a mere 90 cents separates Mastercard, which has the lowest exchange rate, from Visa, which has the highest rate. Not a huge difference.
Where you do get gouged is on foreign transaction fees. With all three providers, there’s a difference of roughly $31.60 between what you would pay with just the base currency exchange vs. the currency exchange + 2.5% foreign transaction fee together. Yikes.
Are You Getting the Best Currency Exchange Rate Possible?
Although the exchange rate fluctuates daily, the markup that Visa, Mastercard and American Express charge compared to the Bank of Canada rate appears to be fairly 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 $9.20 compared to Visa and $8.20 compared to 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 Turkish lira or Brazilian real, there could be a markup of up to 10% (!).
Other Ways to Save on Foreign Currency Purchases
1. ‘No Foreign Transaction Fee’ Credit Cards
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 using a credit card that doesn’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.
We’ve highlighted a few popular picks below, but be sure to check out our full list of the Best Credit Cards with No Foreign Transaction Fees for more options.
|Foreign Transaction Fee||Foreign Currency Cash Back/Rewards||CAD Cash Back/Rewards||Annual Fee|
|Scotiabank Passport™ Visa Infinite* Card||0%||1-2 points per $1 spent||1-2 points per $1 spent||$139||Read More|
|Home Trust Preferred Visa||0%||0%||1%||$0||Read More|
|Rogers World Elite Mastercard||2.5%||3% (USD purchases only)||1.5%||$0||Read More|
Scotiabank Passport™ Visa Infinite* Card
The Scotiabank Passport™ Visa Infinite* Card 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 2 Scene+ points per dollar spent on eligible grocery, dining, entertainment and transit purchases, while all other purchases earn 1 point per dollar spent.
There is an annual fee of $139, but there’s also a signup bonus of up to 35,000 bonus Scene+ points in your first year (that’s up to $350 towards travel). Terms and conditions apply.
In addition, you get six annual PriorityPass airport lounge access passes and a comprehensive travel insurance package.
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. The card also earns 1% in cash back on all purchases in CAD, though unfortunately it doesn’t earn cash back for purchases in foreign currencies. It should be noted that this card has a daily limit of 10 transactions, so it’s not necessarily a good fit for those who make a very high volume of purchases.
Rogers World Elite Mastercard
Although the Rogers World Elite Mastercard technically charges the 2.5% foreign transaction fee, it simultaneously generates 3% in cash back on any purchase made in U.S. dollars. This means USD purchases end up getting 0.5% cash back after the foreign transaction fee is factored out. All other purchases made with this card will earn 1.5% in unlimited cash back rewards. The card also comes with a respectable amount of travel insurance, but it only covers you for 10 days.
2. Prepaid Cards
With prepaid cards, you can load your credit card in advance with funds rather than buying on credit and repaying the charges later. Some prepaid cards don’t charge foreign transaction fees and might offer higher cash back rates on foreign purchases than regular credit cards.
Other prepaid cards allow you to preload foreign currency onto your card, which voids the need for foreign exchange altogether. 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.
KOHO Premium Prepaid Mastercard®
– Minimum Credit Score: N/A
– Minimum Income: N/A
– Other Requirements: Identity confirmation via Canadian ID; bank statement, utility bill, etc.
The KOHO Premium Mastercard® is a prepaid Mastercard® that allows you to load Canadian dollars and shop internationally without any foreign transaction fees. It comes with an annual fee of $84 (or $9/month), but all spending on groceries, restaurants and transportation (including gas) earns 2% cash back, including international purchases. This is an advantage over a number of credit cards, as credit cards that don’t charge foreign transaction fees might not offer their highest cashback rates on foreign purchases, or any cash back on foreign purchases at all.
* Note that though KOHO is widely accepted, there are some commonly travelled countries where KOHO will not work, including India, Russia and Turkey.
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 online via your smartphone or tablet, so you should have no issues managing your account while travelling.
Learn more by reading our CIBC AC Conversion Visa Prepaid Card review.
3. USD Cards
USD credit 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 an extended warranty and purchase protection. The card does come with an annual fee of $35, but it’s rebated on following years as long as you charge at least $1,000 USD to the card each year*.
Apply here for the BMO U.S. Dollar Mastercard®*.
*Terms and conditions apply
Which Credit Card Has the Best Exchange Rate?
Exchange rates are assigned by credit card processors—i.e., Visa, Mastercard or American Express—and not credit card issuers, so one specific credit card can’t be identified as having the best exchange rate. Our studies reveal that Mastercard typically has slightly better rates for major reserve currencies than Visa or Amex—but the difference is so minor that it probably shouldn’t factor into your credit card selection.
We instead recommend choosing a credit card based on its features, like its cash back or rewards rates, fees or insurance package (be sure to check out our list of the Best Credit Cards for Travel Insurance). And if you’re a frequent global traveller, waiving foreign transaction fees might be the most important, money-saving feature you should consider above all others.
What if I Need to Exchange Cash Currency?
There are several reasons why you may not wish to just rely on your credit card when travelling across the border or overseas. Many of us like to carry cash on us when making a trip abroad, thereby avoiding extra credit card fees. You also may be looking to exchange wire transfers, cheques, drafts or traveller’s cheques to or from your Canadian currency. So, how can you make sure you’re getting the best currency exchange rate when doing so?
Some banks, like RBC and TD, offer online foreign exchange currency converters for their customers, so you can find out your bank’s exchange rate instantly for the most commonly converted currencies. But before going straight to your bank, it’s a good idea to compare your bank’s rates against an objective source, like the Bank of Canada’s online currency converter. Also check the rates offered by professional currency exchange offices, taking into account any added fees charged by your bank or the currency exchange service.
Note that your bank may only post their non-cash rate (for example, what you’d get if you cashed a cheque) on their online converter, which is more favourable than their cash rate. Why? Cash rates include shipping and handling charges, while non-cash rates do not. Make sure the rate you’re given is the correct cash rate before you commit to purchasing cash currency.
Doing your due diligence when purchasing or exchanging foreign cash, either with your bank or with a currency exchange service, will allow you to avoid inflated exchange rates (including the dreaded airport and/or international ATM exchange fees!).