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!
