Once you have a US dollar sub-account within your RRSP or other investment account at BMO InvestorLine, the next question is how do you fund it. There are two obvious methods: you can exchange Canadian dollars into US dollars; or you can buy an inter-listed stock on the Canadian exchange and sell it on the American exchange. (There are also a few less obvious methods.) Which is the most expensive (not the cheapest) way to add USD to your InvestorLine account?
How to Check the Foreign Exchange Rate at InvestorLine
You can check the foreign exchange rate BMO is offering very easily at InvestorLine. (It’s not so easy at Investor’s Edge: there you have to phone and ask.)
- Sign in to your InvestorLine account.
- From the Trading tab, select Foreign exchange.
- If you want to see how many US dollars you can buy for 1 Canadian dollar,
in the Action: area select the radio button beside Sell
In the Amount $: field, type: 1
In the Currency: area select the radio button beside CAD
Click on the Calculate button - The system will respond with
an Approximate Rate (in this example: 1.055)
and
a Total: (in this example: $0.95 USD) - If you then select the radio button for USD in the Currency: field
change the Amount $: to 0.95
and click the Recalculate button - The system will respond with
1.023
and
0.97 CAD.
Beware of the Foreign Exchange Fee Built Into the Foreign Exchange Rate
“Wait a minute!” you exclaim. “How come if I change 1 CAD to US I get 0.95 USD but if I change that straight back to CAD I only get 97 cents!”
That’s because there is a built-in foreign exchange fee on top of the actual exchange rate. You get fewer USD than you’d expect for each CAD you spend, and you get fewer CAD for each USD you spend. The bank gets a bit of the money each time you change it.
You can see on this exchange and exchange back, you have paid the bank 3 cents on 1 Canadian dollar, or about 3% in fees.
It may not seem fair, but it’s true.
Testing it with a more practical amount of 1000 CAD:
1000 CAD gets $947.87 USD
and $947.87 USD gets $969.67 CAD
That’s a loss of 30.33 or 3.033%. Ouch.
You can see why investors started looking for a way around these fees!
So How Bad Is It Really to Pay This Foreign Exchange Fee to InvestorLine
Some readers may be thinking, ya ya I have to pay a fee. So what? How bad is it, really?
Well, I guess it depends on how much money you are converting whether it FEELS bad (The loss is actually the same as a percentage.)
| If you convert | You lose |
| $1 | $0.03 |
| $1 000 | $30.33 |
| $10 000 | $303.30 |
| $100 000 | $ |
** InvestorLine’s automated exchange rate improves for amounts in this range. When I actually tested the available exchange online, it cost only $2181, rather than the 3033 I had estimated based on the rates offered at 10,000 and lower. The screen message also said they would phone me to discuss the rates: in other words, they will reduce the commission if it will keep you investing with them. Thanks to Michael James on Money for pointing out this error!
Or to put it another way, would you pay a 3.033% MER on a mutual fund that just replicates the index? Then why would you pay this fee for even less service?
Using the Automatic Foreign Exchange Offering at InvestorLine is the Most Expensive Way to Convert Cash
In conclusion, the most expensive way you can convert cash in an InvestorLine account is to use the automated foreign exchange feature under the Trading menu.
Since I prefer to save money, not spend it needlessly, the next article will discuss some other methods to exchange currencies that cost less than this.
Related Reading
- How to Reduce Foreign Exchange Fees By Selling Inter-listed Stocks in a BMO InvestorLine Account
- How to Add a USD Sub-Account to your InvestorLine RRSP Account
Join In
Have you ever got caught by a horrible foreign exchange fee? Did you buy something on a credit card and get dinged with an extra 2.5-5%? Did you buy something online only to find that they billed you in USD at some terrible exchange? Please share your experiences with a comment.
Did you actually enter the amounts for $10,000 and $100,000? When I’ve done it, the percentages are smaller for very large amounts. For more than $75,000, you can call and get an even better quote, but in my experience, still not as good as using an inter-listed stock.
Oops. Sorry, you’re right, in my hurry to point out that you lose money quickly paying for currency exchange without using Norbert, inter-listed, phoning to get a price match to AccuRate, etc, I didn’t calculate the computer-generated-conversion on the 100,000 amount. I will update the article to reflect the correct rate.
InvestorLine also adds a message even when you are testing the rate at higher $$$ values that says “Please be advised that the Foreign Exchange rate viewed is an approximate inter-market rate. A BMO InvestorLine representative will attempt to call you shortly at the number provided to confirm the actual rate.” I guess they don’t want to lose business!
Thanks for the correction!