Tag Archives: fees

Goodbye BMO US Dollar MasterCard, You’re No Longer a Good Buy for Us

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A couple of years ago we took our first family trip to the US. We saved the money we’d need for hotels, shopping and activities for a few years ahead of departure day. When the Canadian dollar was above parity, we bought US dollars and stored them in an ING Direct US dollar savings account. Before the trip, I applied for a BMO US Dollar MasterCard. Now, though, it’s time to say goodbye to it.

Why a US Dollar Credit Card May be Beneficial

We could have used our regular Canadian dollar credit card for our US expenses. We didn’t because it would charge us a hidden fee on every dollar we spent.

Like many other credit cards, our Canadian dollar card charges a fee on top of the actual Canadian/US Dollar exchange rate. At the time we travelled, this fee was 2.5% of the cost of the transaction. For example, if we paid $100 USD for lunch, we would have to pay a fee of $2.50 in addition to the actual amount it would cost to buy $100 US dollars with Canadian dollars.

There are some Canadian credit cards, like the No Fee Sears Financial MasterCard that do not charge a foreign exchange transaction fee. Instead of one of those, though, we got a USD card.

Why We Preferred a US Dollar Credit Card

The second reason we got the USD card was to control what we paid as our foreign exchange rate. As I mentioned, we actually bought US dollars ahead of time when the Canadian dollar was stronger than the American. That meant we wanted a card where we could make our purchases in US dollars, then pay the credit card bill directly in US dollars.
For us, the BMO USD MasterCard worked perfectly. We paid no hidden fee and we knew what our exchange rate was because we pre-bought our US dollars.

So Why Cancel the BMO US Dollar Card?

Why, then, did I cancel the card today?
Because the card has an annual fee.

When we signed up for the card, the fee was $25 per year. If you spent $1000 in US funds during the year, they reimbursed the fee. For the first two years we had the card, we did have spending of over $1000 a year. This year, though, we won’t. We don’t plan any travel to the US for several years at least. And the fee is now $35 a year.

I did phone and make a half-hearted effort to have the fee waived. I received at least 6 apologies but no price reduction. So I terminated the card.

Be Careful Cancelling Credit Cards

In our case, our credit rating is fairly good. We also haven’t borrowed any money in many years. Cancelling a credit card can have a negative impact on your credit score. In our case, we didn’t care. If your credit rating is weak, however, be careful. Try to find out what impact, if any, the cancellation will have on your rating before deciding whether to cut up the card.

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Do you use a US dollar credit card? Do you travel or just shop online? Please share your experiences with a comment.

What’s the Most Expensive Way to Add US Dollars to my BMO InvestorLine USD RRSP Account?

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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.)

  1. Sign in to your InvestorLine account.
  2. From the Trading tab, select Foreign exchange.
  3. 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
  4. The system will respond with
    an Approximate Rate (in this example: 1.055)
    and
    a Total: (in this example: $0.95 USD)
  5. If you then select the radio button for USD in the Currency: field
    change the Amount $: to 0.95
    and click the Recalculate button
  6. 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 $3 033.00 $2 181 **

** 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.

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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.