Invest US Stocks in the Non-Registered Account at Scotiabank – Currency Exchange Fee Tips

My observations in the last year lead me to believe that I should buy US securities under USD/CAD 1.12 at Scotiabank, preferably <= 1.10. Right now, around 1.08 – 1.09 is certainly favorable to buy some US securities which are undervalued though discounted excellent businesses are hard to come by in this fully valued market.

In my self-directed non-registered account, Scotiabank separates the Canadian positions and US positions. Specifically, in the Canadian Account Positions section, all positions remain in the Canadian currency, while in the U.S. Account Positions portion, all positions remain in the USD currency.

US Stocks in the Canadian Account Positions

Each time I buy a US stock here, Canadian dollars is converted to US dollars. Likewise, each time I sell a US stock here, the proceeds is converted back to Canadian currency. And if I want to buy again, I need to convert to USD again. In between each currency exchange, Scotiabank takes a haircut of 2%.

For example, on July 3, 2014, USD/CAD is 1.0627 (shown on Google Finance), while Scotiabank charges 1.0845 (that is a 2.18% difference). In addition to paying the 1.0845 currency exchange fee, I need to pay $9.99 per trade in the currency of the stock purchased. If I buy $1000 worth of shares, that is 1% fee. In total, the fee I would have paid for a trade on July 3, would have been 8.45% + 1%, that is 9.45%. Of course, I buy US stocks, expecting that the currency exchange rate to stay about the same if not US dollars eventually reverting back to the norm of $0.86USD to $1CAN.

To minimize paying for currency exchange (which would trigger the 2% fee by Scotiabank), I only buy non-dividend paying US stocks in the Canadian Account Positions section of my non-registered account.

US Stocks in the U.S. Account Positions

I deposit money into this account. Each time I do so from my Canadian bank account, Scotiabank takes a haircut of 2%. Trading US stocks inside, Scotiabank doesn’t charge for anymore currency exchange because the money remains in USD.

To avoid paying the 2% difference that Scotiabank charges each time currency exchange occurs, I convert Canadian dollars to US dollars into this account once. When I receive dividends from my US stocks here, I do not get the 2% cut since no foreign exchange occurred. Note that though, when tax time comes around, you still have to report the dividends / capital gains earned in US dollars times the average exchange rate for the year.

For both the non-registered accounts above, the more I convert, the lower the charge Scotiabank incurs. It becomes lower at the following points (also based on July 3, 2014):

  • Equivalent of < $5000 USD (from CAD -> USD): 1.0845
  • Equivalent of $5000 USD (from CAD -> USD): 1.0815 (0.3% discount)
  • Equivalent of $25000 USD (from CAD -> USD): 1.0765 (0.8% discount)
  • Equivalent of $50000 USD (from CAD -> USD): 1.073 (1.15% discount)
  • Equivalent of $100,000 USD (from CAD -> USD): 1.0705 (1.4% discount)

$100,000 is the maximum amount allowed to be transferred using ScotiaOnline.

Obviously, for the average person who earns an average salary, it’s unlikely one would convert to USD to invest above $25k, unless one accumulates funds to wait for a recession to occur where the market drops by over 25%. The financial crisis which was the last market meltdown dropped by close to 50%.

For myself, I convert at most the 5k amount. Even that is not common as I usually buy in 1k to 2k amounts.

Alternatively, a friend of mine suggests I go to the local foreign exchange location for a more favorably rate. I have yet to try that because I enjoy the convenience of online banking. I got a long watchlist, and I don’t know whether my next purchase will be a Canadian or US stock.

How do you deal with your currency exchange?

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

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