Frequent travelers to the US or those who incur regular expenses in US dollars might want to sign up for an US Dollar credit card. It might work out cheaper to convert Canadian dollars into US dollars using this gambit than paying a 2.5% premium that credit cards typically charge for currency conversions. Reader Andrew sent in this note on why a US Dollar credit card makes sense.

I do a fair amount of traveling in the US, and therefore follow closely the mechanisms by which my credit card converts exchange from US dollars to Canadian dollars. This exchange is typically done by Visa at what they say is a a 2.5 percent premium on the prevailing exchange rate “at the time of posting”.

Now, I first became intrigued with exactly what time point Visa would use to make the exchange back in 2007, when the Canadian dollar approached $1.10 (US).

I had the good fortune to be traveling in the States at that time, using my card several times each day. Interestingly, when I returned home to my credit card statement, my quoted exchange never even got close to $1.10, even when accounting for the 2.5 percent premium on exchange.

As the currency exchange rate had been highly volatile at that time, it occurred to me that if Visa could select the time of conversion retrospectively, they could potentially squeeze an extra 1 to 2 percent out of the exchange business at my expense.

However, when I examined the Cardholder Agreement at that time, it stated that the conversion would be made at the prevailing exchange rate at the time of posting to the account. This obligation seemed to limit the ability of the bank to ‘choose’ a moment of exchange.

I recently reexamined the latest cardholder agreement, and lo and behold, the wording on foreign transactions has changed!

“Foreign Currency Transactions:
… we will convert the charges into Canadian dollars no later than the date we post the transaction to your Visa Account at our exchange rate which is 2.5% over a benchmark rate set by Visa International…”

I read this new description in the cardholder agreement, as allowing the bank the flexibility, as long as it is same day, to choose the time of conversion in order to maximize exchange profits. They can exchange all US$ transactions at the day low point for the CA$, and use the day high point for CA$ transactions on US cards.

For anyone sitting on the fence about getting a US$ billed credit card, this may be enough to convince them to go for it!

This article has 31 comments

  1. Will be doing a fair amount of US travel soon as well.
    Thinking of getting a USD credit card but a little confused about how to pay the balance. Is it even possible to do this without a USD checking account?

  2. I recently obtained a US Visa as part of transferring all my accounts to TD Bank (their $250 promotion).

    With the Select Service Account (minimum $5000 balance to avoid all fees) you also receive at no extra charge TD’s “borderless plan” (a US Visa account and a US Checking Account). I believe TD will also give you a slightly better exchange rate if you are a Select Service account holder.

    With this setup, you can choose to exchange CAD to USD whenever you like and avoid the higher rates charged by the credit cards.

    Great idea and a great post!

  3. Forget about getting a credit card, or even a Canadian/US account, just get a straight off American Bank checking (not chequing) account that includes a debit/credit card, such as through Harris Bank.

    Free card, free checks, no monthly fees. Then use XEtrade.com to get the best possible FX rate to transfer for free via EFT/ACH from your Canadian bank account to your Harris account. I did this for American DRIPs and for our U.S. vacations and cross border shopping. Free cash back at places like Target, Wal-mart, Sears, etc… if you need cash.

    http://www.dripprimer.ca/canadianbankingforusdrips

  4. @Cyrus: You will typically need a US dollar bank account to pay the balance.

    It’s important to consider all the fees before doing this. For example, if your US-dollar credit card charges a $25 annual fee, you need to spend $1,000 a year on it to make this worthwhile. If you’re opening up a new USD bank account to fund the card, again, make sure there are no fees.

    We found a good USD account at Scotiabank: no fees as long as you keep a $200 balance. We found the best USD credit card deal at BMO MasterCard, which refunds its $25 fee if you spend more than $1,000 in any given year.

  5. Canadian Capitalist

    We do have a Select Service account and a Borderless account but we didn’t opt to get the USD credit card as we rarely travel or shop down there. If we do decide to get a USD credit card, TDCT waives the annual fee as part of its Borderless account. Cyrus, you may want to explore a USD Bank account & Credit card at your favourite bank.

    I agree with the comment that you need to make enough transactions to make this worthwhile. Even if I spend $500 USD per year, it is at most an extra expense of $5. That doesn’t justify getting a USD credit card, IMO.

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  7. @CC. Does your employer reimburse you in loonies or greenbacks? And if your employer reimburses you in loonies, do you file your expenses based upon your cost in loonies? My point is that I think the employer should pick up the currency exchange costs incurred.

    If you’re talking about personal travel, then yeah, I guess it might be worth shopping around. I used to do a lot of US travel for work a few employers ago, but now I only go state side 2 to 3 times a year on vacation. For me, it’s not really worth the trouble because I may choose to vacation someplace NOT in the USA at the drop of a hat.

    • Canadian Capitalist

      @Phil: I rarely travel on business but if I do, I get reimbursed in loonies. You are right that the employer has to pick up the conversion costs. These days, I don’t do as many trips to the US either.

  8. Useful article– thanks!

    An interesting aside– if you buy a good in the US on your Canadian dollar Visa card, you will get hit with the 2.5% fee coming and going. Therefore, even though you return the good, the transaction still ends up costing you money. The banks always win!

  9. Agree with most of the people above. I would definitely research any hidden fees associated with using the card, but seems like a great method of converting currency for frequent fliers.

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  12. Another issue arises when you travel abroad. For instance, if you go to Europe – credit card charges are billed in US funds. It seems to me that the banks get their cut by changing the Euros to US $ – then another cut when the US$ are converted to Cdn. Therefore, it’s a better deal to use a US$ credit card in Europe. Anyone have any opinions on this?

  13. I have used this strategy for years. I have a U.S. dollar Visa card and a U.S. dollar bank account. I transfer funds to the U.S. dollar account whenever the exchange rate is favorable and accumulate funds in the account to pay for U.S. dollar purchases and the cost of staying in the U.S. 3 months of the year.
    transferring funds to the account is usually a better rate than waiting for the foreign exchange transaction on the Visa card. I pay the outstanding balance in full each month on the Visa card through the U.S. dollar bank account at par.

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  16. I am retired and have been a snowbird for 9 years. During that time, I have, with great difficulty, opened a bank account in the U.S., and obtained a credit card issued in the U.S. (as opposed to a U.S.$ credit card issued by a Canadian bank.

    In recent years, I have tried to get additional U.S. issued credit cards, including some issued by U.S. retail stores – all to no avail. All of them gave the excuse that they cannot issue their card, or open an account for me, because I do not have a social security number (their convenient all-purpose tracking number, including credit, etc.). When I pointed out that they can get a credit report in Canada for me, and even gave them the names of the Canadian credit reporting agencies, most won’t even bother trying. One credit card company even got a credit report on me in Canada (and they admitted it was excellent), but still refused to issue the card to me as I did not have a social security number. Some even stated it is a requirement of the Patriot Act – the Act used to counter terrorism and money laundering, etc. Some have asked for my Canadian social insurance number, but I refuse to give it to them, as our S.I.N. number is for Revenue Canada purposes only, and besides, would just open the door for one more way towards identity theft.

    What can we do?

    Lionel Birnbom,
    Ottawa, Canada.

    • Unfortunately, there are two things in your way.
      1) The Patriot Act. The credit/bank must be 100% confident that they are following the KYC policies to the ‘T’. (K-now Y-our C-customer).
      2) Canadian law, not U.S. law forbids any U.S. lender to lend to a Canadian if that lender is NOT licenced by the Canadian government to lend to Canadians. The institution must have an office or existance in Canada in order to lend to a Canadian. Canadians can get a Macy’s card because the card is issued by Department Stores National Bank which is owned by CitiBank. Citi is a licenced Canadian lender. Target operates in both countries and their lending is owned and operated on their behalf by TD Bank, USA a subsidiary of TD. Canadians can get a card from RBC Georgia (no further explanation needed) even then, companies like Chase, Canada’s largest credit lender won’t issue US cards to Canadians, as a business decision. Bank of America will, however they have to be very cautious in doing so as they could be violating a business agreement they have with TD Bank and TD’s MBNA business.

      Canadians seem to forget that being in the USA is a privilege not a right. Once you cross the border into the USA, you left your rights at thé border… Even if you own property in the USA, you still do not have any rights in the country. Your best bet for any type of Financial services are with Canadian Banks and Credit Unions who have businesses in the USA.

      RBC Bank, Georgia N.A.
      TD Bank, AMCB N.A.
      NatBank (National Bank of Canada)
      Desjardins Bank, N.A. (Caisse Depot Desjardins)
      BMO Harris Bank, N.A.

      …but even as a Canadian, you still do not have any ‘rights’ to do business with thèse banks. You are still à non-résident and still have no rights under US law. At thé same time thèse Canadian institutions are US Banks and must adhère to US law. They are complete and separate entities, from their Canadian parents and you are neither protected nor have any ‘rights under Canadian laws. Yet, these banks CAN, and will use Canadian laws in their US divisions for their own benefits such as ‘Right of Offset’ — if you had a debt written off at a Canadian bank, then 15 years later opened an account at their US subsidiary, they can take the funds out to satisfy the old debt..and the statutory of limitations of either country do not apply to you.

      If you can get a credit card, loan, mortgage or bank account in the U.S. take care of it and follow the rules to a ‘T’ because if the banker decides they do not like you, they can shut you down in an instant and there is nothing you can do.

      As well, if you have a loan, mortgage or credit card that is with à bank that will lend to ‘non-residents’ and your bank gets sold to another lender ( much like the recent RBC sale to PNC ) and the new bank has a policy that includes not lending to non-residents, that new bank can immediately call in all your debts, no matter what your payment history might be, and because you left your rights at thé border – you must pay up, or face foreclosure or legal issues, and there is nothing you can do. Nothing.

      It is extremely important for any Canadian signing a contract in the USA to ALWAYS read the fine print, and if you don’t understand it, take it to a lawyer. While you might think that these are extremes and never happen, they can, and they do, and you don’t hear about them because you have no rights, citizens don’t care, it’s not newsworthy, and it could be damaging to tourism.

      Caveat Emptor*2

  17. You would also want to get one that has a zero annual fee if the card is only for occassional visits to the US.

  18. Future Money-Bags

    Long post deleted due to most of it being covered by others already… heh.
    But the annual fee of the BMO USD MC, is easy to handle. First of all at $25/year, it is about as low as you can get without being free. But don’t worry, I would never pay that. I also wouldn’t MAKE myself spend money, in order to save money.
    Alas, solution. I make purchases over $1000/year USD anyways.
    Tickets online, flights, hotels, gas if I go visit there, renting a car, buying alcohol/food/whatever. PLUS not everyone has a USD MC, so this means I buy things for many people, and they pay me back in Canadian.

  19. Lots of good suggestions here. Another reason: If you’re a snowbird or regular visitor and regularly spend a fair bit living in the US, you can get a better exchange rate by purchasing in large amounts and leaving it in a U$ account or short term note. I use my TD investment broker and am pleased with the rate I get.

    No one has mentioned RBC. They have a both a U$ account in Canada (no fees) and a US Bank with free immediate transfers between the two (no fees with a minimum balance of $700). They will issue a US bank U$ VISA debit/credit card and supply checks (cheques!!) from their US bank – U$ checks drawn on a Canadian bank are problematic.

    Store credit cards are a problem. However Home Depot will issue one if you tell then you’re Canadian and tell them to use you SIN in place of your SS#. They will probably have to check with their home office to verify. It worked for me. Don’t know if other companies doing business both sides of the border are as accommodating, but it’s worth asking

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  21. Given that (correct me if I am wrong) all purchases outside of Canada will be converted to USD and then to the Canadian Dollar. Is it not a good strategy to us a US denominated credit card for ALL purchases made outside of Canada? i.e. Making purchases in Europe would only incur a Euro -> USD conversion instead of a Euro -> USD -> CAD conversion. Thoughts?

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  23. As a frequent traveler to the US and a small business owner who deals exclusively in USD, I understand the costly 2.5%+ surcharge taxed on by the credit card companies.

    There are a few options for Canadians who want a US dollar account.
    (1) – Canadian Bank, USD Account

    Pros
    Money remains in Canada (not covered by CDIC tho)
    Easily accessible for cash (go to ATM or branch)

    Cons
    Monthly fees (exception Royal Bank USD eSavings Account w/ 1 free withdraw per month)
    Not a ‘true’ US account. Some payment processors (i.e. PayPal) will not let you transfer USD into such account

    (2) USD account in US

    Pros

    True US account
    Ability to accept wire transfers
    Usually free (Harris Bank, RBC Bank USA)
    VISA / MC Check card to shop online or in person (like Interac)
    Write yourself a cheque then cash it here

    Cons

    Unless you deal with a US – Canadian affiliated Bank (i.e. BMO – Harris, TD -BankNorth, RBC -RBC Bank USA ) its very hard for Canadians to open up accounts.
    Cash not easily accessible

    (3) USD Credit Card

    The follow companies allow Canadians to have a US Credit card:
    - Target (Apply in store)
    - Macy’s (Apply in store)
    - Nordstrom’s (Can apply online)

    Pro:
    Charge everything on the card and avoid 2.5% fees

    Cons:
    Can be a real hassle to pay off unless you have a US based account (see above) as a US cheque from a Canadian USD account could takes months to clear.

    —-
    I have combination of all three and transfer money back and forth between my USD Canadian account and US account depending on if I need cash immediately or not. As I spend close to $500+ a week, the BMO credit card does the trick (plus the $25 yr fee gets waived for $1000/yr). Sadly there are no rewards unless you want to spend more on an annual fee. I have a few accounts with Royal Bank USA (linked to my eSavings account) and a Harris Bank account as backup.

    Hope this helps.

  24. If you live near a border city, most banks will open a bank account for you. You will need a passport, and another piece of ID.

    JPMorgan Chase (operate as Chase) will open accounts for Canadians. Macy’s is another company that will open credit card accounts for Canadians.

    After establishing credit with RBC Bank USA, they will issue you an American Issued Visa card, (Not the RBC Royal Bank USD Visa card) as well as line of credits and mortgages based on your Canadian Credit History. (I would highly suggest this to the snowbird of 9 years having difficulty) You WILL have to provide your SIN to access your Canadian Bureau. You can refuse, however be prepared for the bank to refuse you as your SIN is your “account number” with the bureaus, period. You can also get an ITIN card from the IRS. If you own property in the US, you should already have an ITIN number anyway, the ITIN is just an American SSN number without the privilege of being able to earn an income thru employment in the US. We have the same here in Canada, the SIN’s here for non-residents begin with a “9″ to advise employers that the presenter/holder has a tax account, but is ineligible to earn an income thru employment in Canada.

  25. To confirm Steve’s statement, all worldwide purchases made by Canadians using their Canadian credit cards are converted in US$ before being converted into Canadian dollars for their statement.
    When you apply for a credit card there is no mention of this little trick. Only when you receive your card and the agreement booklet printed in very small fonts that you discover this swindle.
    I wrote several letters to Visa, Master Card and Amex and none of them replied. On top of that they don’t want to disclose the rates used for their successive conversions (interbank, currency cross rate, spot market rate, bank retail “buy and sell”, …),
    So with today volatile exchange rates, you may have some nasty surprises on your statement after a trip to Japan, Hong Kong or to the Euro zone.
    This is totally inadmissible considering that the Canadian dollar is traded worldwide on the stock exchanges.
    On top of that the currency exchange spread used by the Canadian banks is usurious. We would be better getting rid of the loonie and adopt the greenback. Anyway many countries do not accept the Canadian dollar which has no more value than the Burmese Kyat, the Bahamian dollar or any other monkey currencies.
    The Canadian customers are treated like third world citizens and accept this situation without complaining. We are a bunch of amorphous people and we just deserve it.
    I start to understand why they were so few people demonstrating for the G20…no motivation.

  26. i was told that capital one does not charge the regular 2.5% conversion fee- great news and they have a delta canadian card now which gives you 25K miles upon the first use- enough for a free flight

  27. Another reason: Some US online retailers will not accept your credit card unless it has a US mailing address.

    One example: The Microsoft Store. They insist you buy the same product (for example, Windows 7 – an online DOWNLOAD) from their Canadian store. But, as usual, the Canadian store has ridiculously inflated prices and hellish taxes.

  28. I don’t know who claimed Capital One does not charge the rip off 2.5% conversion fee but they certainly do on my card. YMMV.

  29. Chase Canada http://www.chasecanada.ca offers two VISA cards with no interchange fees. They are the Marriott Premier VISA ($120 annual fee) and the Amazon VISA – no fee. They are however a horrific bank to deal with in Canada (ask any Sears card holder).

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