The different possibilities for foreign currency transactions
To pay abroad, several solutions exist:
- Currency exchange
- Cash withdrawals
Exchange Canadian dollars for local currency
Exchanging Canadian dollars before departure makes sure you can pay almost all the merchants… but is not the most optimal for several reasons.
1- Foreign exchange transaction fees
Whether in Canada or upon arrival in the country you are visiting, you will have to exchange your Canadian dollars for the local currency, which will result in a fee.
“Currency exchange/currency conversion fees“: the exchange office “sells” you foreign currency in exchange for your Canadian dollars at the rate it wants.
This rate will include the exchange rate (which will therefore be “hidden”).
By comparing with the market rate, you can guess how much this transaction will cost you.
Example: the market rate for US$1 is CA$1.30. If your exchange office sells you that same US$1 to 1.35 CA$, it means that it charges you a fee of 3.8%.
For a transaction that allows you to get US$1,000, you will have to pay $1,350. The exchange fee here is about $50.
2- Refusing your money
Want to rent a car? Staying in a hotel?
In many cases, the credit card is unavoidable because it is guarantee for the merchant.
It will be very rare for a car rental agency or hotel to accept cash for this.
3- The risk with a wallet full of cash
If your wallet is stolen, no recourse will be possible unlike credit cards!
Around the world, we are increasingly moving towards digital payment solutions. In some countries, cash is no longer accepted for services as basic as taxis!
However, it is always helpful to have some “local” money when visiting a foreign country.
Money withdrawals abroad
Two ways to withdraw money:
- with a debit card
- with a credit card
Withdraw money abroad with a Canadian debit card
The debit card allows you to have direct access to the funds available in your checking or savingsaccount.
Beware, however, of several aspects:
- Your card’s network (Visa/Mastercard): Some ATMs may refuse one of these networks.
- Preset limits: Your card issuer limits the amount you can withdraw per withdrawal and/or per week. Find out before you leave and change your limits accordingly!
- Fees: There will be several fees depending on your card:
- foreign exchange/currency conversion fees: a rate decided by your card issuer
- Withdrawal fee: a fixed fee per withdrawal or variable depending on the amount withdrawn
- ATM fees: a fixed fee charged by the ATM operator
Some debit cards are more advantageous than others for withdrawals abroad.
For example, Scotia/Tangerine are members of the Global Alliance, a collective of banks that allow their customers to withdraw money free of charge from ATMs of the Global Alliance network.
For Scotia/Tangerine debit card holder, for example, it is possible to withdraw with no ATM fees at Bank of America ATMs in the United States or BNP Paribas in France.
However, the currency conversion fee willapply.
Money withdrawal abroad with a Canadian credit card
The same warnings as debit card withdrawals apply to credit cards.
But other much higher fees will be added because the credit card is mainly a PAYMENT method and not a WITHDRAWAL method !
Issuers will then charge:
- a cash advances interest rate (between 20-30%)
- a fixed or variable fee per withdrawal
However, if you find yourself in an emergency situation and need to withdraw money from your credit card, we advise you to immediately pay integrally your entire credit card.
Indeed, interest in cash advances begins to accrue from the withdrawal, as pointed out in this infographic by the Financial Consumer Agency of Canada.
After withdrawals, let’s take a look at paying with your debit/credit cards abroad.
But first, an important reminder:
Lately, in Greece, I have seen that if I chose to pay in Canadian dollars, then a conversion fee of 10% was charged by the merchant !
While choosing to pay in euros with my Scotiabank Passport Visa Infinite*Card, this fee was 0%!
Payments abroad with a Canadian debit card
As with withdrawals, foreign currency payments with a Canadian debit card will be impacted by preset limits and various fees.
However, this can prevent you from carrying cash with you from Canada, which can reassure some. However, we would prefer this alternative: to pay with a Canadian credit card.
Payments abroad with a Canadian credit card
Most Canadian credit cards will allow you to pay directly to any merchant abroad.
However, different fees will impact each transaction:
|ATM Withdrawal||Payments with the card|
|Cash advance fees||% of the amount withdrawn and/or fixed fee in $||–|
|Conversion fees||Between 0% and 5% of the amount||Between 0% and 5% of the amount|
|Visa/Mastercard Network Fees||Between 0% and 2% of the amount||Between 0% and 2% of the amount|
|Interest fees on cash advances||Between 20% and 30% per year without grace period||–|
|Interest fees on purchases||–||Between 15% and 30% per year with grace period|
|ATM fees||Between $0 and $10||–|
Now let’s take the same chart, with a purchase or withdrawal of $1,000 with the most common Canadian credit card fees:
|ATM Withdrawal||Payments with the card|
|Cash advance fees||$7.5||–|
|Conversion fees||2.5% = $25||2.5% = $25|
|Visa/Mastercard Network Fees||1% = $10||1% = $10|
|Interest fees on cash advances||20% = $17||–|
|Interest fees on purchases||–||– **|
|Total fees for $1,000||$47.5 – $64.5||$35|
Interest charges on cash advances apply from the grace-free withdrawal: to avoid them, pay your credit card immediately!
We assume that you pay your credit card balance on time to avoid interest charges on purchases.
You see, for $1,000, if you withdraw at a counter you will pay between $45 and $65 in fees! If you make a transaction, it is a $35 fee.
The best way to save money on foreign currency transactions
Three credit cards issued by Canadian banks are the only ones that do not charge any conversion fees for your foreign currency transactions:
Conversion fee: 0% !
With this benefit, for each transaction, you save a fee of 2.5%.
The exchange rate obtained will most of the time be very close to the interbank exchange rate. In any case, it will be much more advantageous than the one from exchange agencies.
No transport of foreign currency
One of the traveler’s fear: to have his money stolen!
We mentioned it above: in the event of cash theft, you will have absolutely no recourse.
By using your credit card, you take away that risk!
Your credit card has been compromised and money has been taken from your account?
No problem: you’re not responsible!
Upon review, your credit card issuer will refund money improperly taken from your account.
The DEBIT card often limits you to both withdrawals and payments you can make.
This is not the case with the credit card: the limit will be the one set (5,000 – 10,000 CA$…).
Points and miles earning
Finally, a very important aspect for points & miles hunters: each transaction on your credit card will earn points and miles!
For example, if you charge 1,000 euros of travel purchases to your HSBC World Elite MasterCard (car rental, hotels, airfare…), which is about 1,500 CA$, you will get 6 points per Canadian dollar.
This means you’ll earn 9,000 points (a $45 value)!
Points that you can easily apply as a statement credit to your travel purchases!
You can see it: you need to plan your money needs when going abroad !
If the payment solution with a credit card that does not charge any foreign currency conversion fees is ideal, no other options should be set aside, for all the reasons mentioned above.