Feb 13: How to Save Money on Currency Exchanges: (CAD and USD)
How can I minimize my losses and even strategically gain on Foreign Currency Exchange?
Statistics in our article have shown that there are better days of the week to exchange currency to increase savings for your bottom line by as much as $134,058.35!
Exchanging currencies on the date your invoice is due or whenever you feel like it could lead to you missing out on possible savings! Follow our strategies and save.
We analyzed 10 Years Worth of Trading Data to Determine a Formula for Saving Money
The trends in this data led us to the best days of the week to exchange currencies.
The Idea of the Case
Many of the businesses we service make payments on the 1st business day of each month.
We wanted to find out if there were better times to make these payments based on the daily exchange rate fluctuations.
All data is based on a business that exchanges $100,000 each month.
The impact this study brings for your business is relative to the size of your monthly currency exchanges. All numbers are displayed in Canadian Dollars (CAD).
Here were our findings..
The 3 Strategies
There is a significant difference with the below three proven formulas that work with many different currency pairs..
For CAD to USD you can save up to $134,058.35.
Strategy #1 – First Business Day of the Month
Exchange your monthly CAD to USD on the first business day of each month.
Strategy #2 – Dollar Cost Averaging (5 Days)
Exchange an even amount of currency over the last 5 Business Days of the month.
With USD to CAD you can save up to $84,835.23.
Strategy #3 – Dollar Cost Averaging (10 Days)
Exchange an even amount of currency over the last 10 business days of the month.
If averaging over 5 days was an effective Strategy for USD to CAD, then what about averaging 10k over 10 days for both currency pairs?
In this article we will determine if 10 day Dollar Cost Averaging Works.
USD to CAD
“I have USD revenue and I need to exchange to CAD each month, but I never know when to exchange it…”
If this is you then you are not alone.
76.3% of Canadian exports are sent to the US and these companies are paid in USD.
Here are the 4 insights we gathered from our research:
1.The best bang for your buck is to evenly average out your exchanges over the last 5 business days of the month, with savings of $8,137.92 annually.*
5 day Dollar Cost Averaging Strategy #2 is pictured in Green on the above chart.
2.The worst thing you can possibly do is Exchange on the First Strategy #1 and wait until the 1st business day and exchange all of your money at once.
“The exception to the above is if you are charged a higher percentage for smaller amounts by using a bank or old school foreign exchange company.
How will you know?
If you are speaking to a human they are always making a direct commission on you so smaller stuff isn’t worth their time unless they jack up the price.
Best to look for fintech companies that offer cheaper pricing for any sized transaction.” – Johnathan Holland, Foreign Exchange Analyst
3. 10 Day Dollar Cost Averaging Strategy #3 over a longer period of time does not help your case.
You might think that averaging over a longer period of time would help give you a better price, but the last ten years has proven the opposite to be true for USD to CAD.
If you were to exchange even amounts over a two week (10 business day) cycle for the last 10 business days of the month you end up leaving $33,905.09 off the table!
But at least you tried, right?
4. Even if you used Strategy #2 with the best return, your bank on average would have STILL taken $298,853.75 in hidden foreign exchange fees from you!
Do us all a favour and look for alternative options.
That’s a lot of unnecessary money lost to transaction fees.
Now that we’ve analyzed some of the areas of value, let’s delve deeper into numbers so that you can understand how to exchange on the best days of the week according to 10 years of exchange rate data.
At the end of the article we will explain to you how to easily implement this without lifting a finger.
* – Savings are based on exchanging $100k each month over ten years of trading data.
Possible Savings USD to CAD
How much would I really save using the best strategy (not including bank fees)?
If you exchange $10,000 each month you save a total of $468.19.
If you exchange $100,000 each month you save a total of $8,137.92.
If you exchange $1,000,000 each month you save a total of $84,835.23.
And all you need to do is exchange your monthly funds evenly for the last 5 business days of the month.
Now what if you include bank fees compared to a foreign exchange service AND use this strategy..
If you exchange $10,000 each month you save a total of $28,050.21 Notice how high the bank fees are here.¹
The strategy itself saves you $468.19, but using the bank costs you a lot more than that in fees!
If you exchange $100,000 each month you save a total of $99,455.16.²
Notice again the substantial jump in fees.
If you exchange $1,000,000 each month you save a total of $98,524.00.³
You can go from paying 3.64% to 0.5% pretty quickly with $1,000,000 in monthly exchange volume.
1 – Bank fees on average of 3.64% and foreign exchange company fees at 1%
2 – Bank fees on average 2% and foreign exchange company fees at 1%
3 – Bank fees on average 0.5% and foreign exchange company fees at 0.4%
Why Fintechs are Better
Fintechs are Focused on Providing Better Customer Service to Small Business Owners.
If you are executing Strategy #2 with a trader over the phone then 5 separate daily $20,000 payments might cost you more than the 2% cost we showed in the data and this translates to $99,617.92 in extra fees.
And if their $200,000 per transaction client calls them while they are on the line with you, better believe they are putting you on hold.
Using a fully online foreign exchange company (like Curexe) without commissioned traders ensures you get the same low rate for any sized transaction and allows you to execute this strategy and save this $99,617.92 in fees.
Also, be weary of companies that offer $9.99 transfers or money transfers with zero fees! We found this at one of the banks: They are all charging you a percentage on the foreign exchange and it’s criminal that they aren’t being up-front and showing you.
It should be law to inform you!
CAD to USD
“I have CAD and need to exchange to USD each month to make a payment(s)…”
Now that we’ve given you the statistics on USD to CAD, let us give you the statistics in the reverse of that pair.
1. It is actually better to wait until the first business day of each month and exchange your CAD to USD ( Strategy #1), by $13,834.89 annually to be exact.
2. The worst thing you can do is evenly average out your exchanges over the last 5 business days of the month!
Sound familiar? Polar opposites to exchanging USD to CAD and now Strategy #2 is the worst option.
3. Again, this whole concept of Strategy #3 exchanging an even amount over the last 10 days does not work!
It is the 2nd best option, but when exchanging all funds on the 1st day you are still saving an extra $5,016.00 and this isn’t including:
- Bank account wire fees
- Accounting for larger percentage costs for smaller amounts exchanged
4. If you exchange your CAD to USD on the 1st business day of each month (best strategy)
You would be smart to add an extra $353,584.87 to your bottom line over the period by using a Fintech Service instead of a Bank.
Now that we’ve analyzed some of the areas of value let’s delve deeper into numbers so that you can understand how valuable this information really is to you.
Possible Savings CAD to USD
How much would I really save using the best strategy without considering bank fees?
If you exchange $10,000 each month you save a total of $1,812.54.
If you exchange $100,000 each month you save a total of $13,834.89.
If you exchange $1,000,000 each month you save a total of $134,058.35.
Again, incredible difference in savings.
All you need to do is exchange your CAD to USD on the 1st of each month to get the above savings.
Now what if you include bank fees compared to a foreign exchange service?
If you exchange $10,000 each month you save a total of $35,789.85.
The strategy itself saves you $1,812.54, but using the bank costs you a lot more than that in fees!*
If you exchange $100,000 each month you save a total of $134,152.48.
Notice again the substantial jump in fees from $13,834.89.* If you exchange $1,000,000 each month you save a total of $253,166.89.
This accounts for savings of $119,108.55 over using your bank.*
Imagine transacting $100,000 each month and not knowing that over the next 10 years you could save an additional $134,152.48 to the bottom line.
Not to mention 10 years from now you could be doing $1,000,000 a month instead of your current $100k.
At least the bank cares about you then, right?
*Same conversions as listed in USD to CAD’s #1,2,3
How Can I Save Money on My Next Exchange?
CAD to USD is simple. Exchange on the 1st business day of each month.
But what about the more complicated USD to CAD strategy?
We know it’s best to exchange all your monthly currency evenly over the last 5 business days of the month, but this seems a bit hard to execute on.
A good way to look at this is by analyzing your options.
So, what are my options at the end of the day for exchanging using the best strategy? Bank | Forex Company | Fintech
A) Use your Banks online platform (and get killed with the foreign exchange cost)
B) Use a Foreign Exchange Company that has been around a while and call the trader every business day for 5 days and get your funds exchanged.
C) Use a Fintech foreign exchange business where everything is online (with NO commissioned trader on the other end) and have this trade automated.
Banks vs Forex Companies vs Fintechs
A) Using your bank to exchange USD to CAD is fairly easy to do, but they are unapologetically expensive.
You would typically go to your online banking (no matter what the size of your company) and the bank will gladly let you click a button allowing you to move your USD over to your CAD account.
Because it is accounts between yourself the bank doesn’t have to worry about fraud, money laundering or any other compliance issue.
But, they will gladly take 3% of all your money and for what? The computer system processed it.
There is no need for such high fees only that they can get away with it.
The only other downside to this strategy is you need to remember for 5 business days in a row to go online and exchange 1/5th of your total monthly amount each day.
B) At least with a foreign exchange company you get some savings.
Depending on the volume you’re doing they might charge the $10,000 per month client (since you would only be doing $2,000 per even transaction) 2.5% instead of the 3% a bank might charge.
And with this strategy you need to call the trader for 5 days in a row and make sure she/he isn’t trying to rip you off by checking the exchange rates.
Remember they are directly commissioned on your trade. They want more!
If you are doing $100,000 a month the FX trader is a little nicer than your bank, but since you are doing $20,000 increments you might get charged 1.5 – 2% (or even more) with the same issues of you needing to check each time and call in each day.
If you are doing $1,000,000 the FX trader likes you a lot more because when exchanging $200,000 they start to give you better rates at like 0.5 – 1.5% depending on if you sound intelligent about FX markets on the phone or not.
C.There are two types of fintechs to consider:
1) Will make it easy to go online to place the order, but you will have to place it each day (similar to your online bank option) for the 5 days and remember to do this.
2) At least one fintech in Canada allows you to “opt-in” to this 5 day strategy and the company automatically executes this strategy for you.
In both scenarios, the company charges you the same low percentage cost on the foreign exchange and you would save $134,152.48 by doing so.
We hope this helps the business owners out there that are always looking for new hacks to better themselves and their businesses.