Be careful with Canadian cash exchange

Travel to Canada is getting more expensive for Americans planning trips across the border. So why let extra bank fees whittle away those dwindling vacation dollars?

Chalk it up to world economics, but a hotel room priced at Cdn. $200 now costs $184 U.S. based on the exchange rate of 92 cents to the Canadian loonie, named for the bird on the one-dollar coin.

That’s better than last year when the two currencies reached par, but not nearly as good as last April, when a much stronger greenback meant the Cdn. $200 room would have cost just $158.

Which way things will go from here is anyone’s guess. Exchange rates – the amount you get when exchanging U.S. dollars for another currency – change daily based on economic trends such as oil prices and budget deficits.

For travelers, however, the bottom-line goal is always the same: Getting the best exchange rate available while minimizing service fees that can add up to the cost of a dinner out or extra night’s hotel stay.

Whether you’re planning a trip this summer or thinking ahead to the 2010 Olympics in February in Whistler and Vancouver, B.C., hold this thought: How you pay for hotels, cars, restaurants and other expenses will affect how much you pay.

Credit/debit-card purchases

Using a credit or debit card for most purchases makes the most sense. This is because Visa and MasterCard process the charges at the most favorable daily exchange rate, the interbank rate that’s at or very close to the rate listed in newspapers or on the Internet at sites such as www.oanda.com.

The catch: You’ll want to make sure you’re not only getting the best exchange rate, but also avoiding high foreign-transaction fees.

Keep in mind a new wrinkle: As of June 1, most banks began applying these fees to purchases to any transaction made in U.S. dollars if it was made or processed outside the U.S.

Examples would be something bought online through a store in Canada, or an Olympics hotel/ticket package paid for in U.S. dollars, but processed through a Canadian vendor.

Foreign-transaction fees are twofold: Visa and MasterCard levy a standard 1 percent fee on the purchase amount after it’s converted to U.S. dollars. Some banks then tack on extra fees for a total of 2-3 percent.

This means that if you spent Cdn. $200 on a hotel room and the charge came in at $184 when converted to U.S. dollars, you’d pay a conversion fee of $1.84 at 1 percent and $5.52 at 3 percent. Best advice: Use a card that carries a maximum conversion fee of 1 percent or less.

Virginia-based Capital One ( www.capitalone.com) offers the best deal for travelers. It waives all foreign transaction fees, including the 1 percent Visa and MasterCard charge.

Next best are smaller local and regional banks and credit unions which pass on only the 1 percent fee. Most national banks now charge 3 percent, but that could go higher in the future as banks look for new ways to raise credit-card revenue.

Tip: Avoid offers by merchants to convert your credit-card purchases to U.S. dollars. Called “dynamic currency conversion,” this is sold as a convenience to consumers, but it’s also a profit-making opportunity for retailers who tack a surcharge onto the base exchange rate as a fee.

The main offenders: rental-car companies and shops that cater to tourists.

ATM withdrawals

Withdrawing money from a cash machine in Canada can be the easiest and least costly way to get Canadian dollars, but there are a few caveats:

•As with credit cards, watch the fees. Aim for an ATM/debit card with a maximum fee of 1 percent of the amount after conversion to U.S. dollars. Again, smaller banks and credit unions are your best bets.

•Avoid additional withdrawal fees. Bank of America, for instance, charges $5 per foreign ATM withdrawal plus a 1 percent fee on the amount, but waives all charges if you use an ATM at a Global Alliance affiliate bank – Scotiabank ( www.scotiabank.ca) in Canada.

•Some Canadian banks might also charge ATM fees. Minimize these by asking your bank or credit union to raise the amount you can withdraw each time.

•Avoid non-bank cash machines such as those found in some grocery stores or gas stations. Withdrawal fees are high.

•Don’t use a credit card to withdraw cash. You’ll pay cash-advance fees and paying interest right away.

Tip: Tell your bank or credit union that you’ll be traveling and using your ATM and credit cards in Canada. Otherwise, they may suspect fraud and put a temporary hold on your accounts until they hear from you. Take along your bank’s phone number in case of a problem.

Changing money in Canada

Exchanging U.S. dollars or travelers checks for Canadian currency in Canada is a more costly way to go, but easy to do at banks, or private “change” businesses in tourist areas and at the airport, train station, etc.

The trade-off for convenience is a worse exchange rate than you get by using a credit card or ATM and/or a service fee that reduces the amount you receive.

Hotels will sometimes exchange small amounts of cash for guests at fair rates and no commission. The Westin Hotel Resort and Spa in Whistler lets guests change up to $100 a day in either cash or travelers checks at a favorable rate with no extra service charge.

Buying Canadian dollars here

There’s little reason to buy Canadian dollars here before you go. AAA and banks offer this as a convenience for customers, but poor exchange rates – 3 to 5 cents below the base rate – and other fees make this an expensive way to go.

Paying in U.S. dollars

It’s often possible to pay with U.S. dollars in Canada. Exchange rates vary. Some merchants offer a rate close to the daily bank rate; others offer only “par,” a straight one-for-one exchange.

Computers at the The North Face Store in Whistler automatically recalculate the exchange rate each day for customers who want to pay in U.S. dollars. All shops, restaurants, ski lifts, etc., run by Whistler-Blackcomb accept U.S. dollars at a rate that’s within a few cents of the official bank rate.

Policies among Vancouver merchants vary. Murchie’s Tea & Coffee stores try to keep their exchange rate within 2-2.5 cents of the bank rate, says Grant Kuebler.

“We don’t look at it as a profit center,” he says. “With all that’s going on in the economy, we want to be a good value for tourists.”

Tip: While many businesses will take U.S. dollars, you’ll get your change in Canadian currency.