Monday, October 25, 2010

Number One DIY Investing Cost: Currency Conversion?

After a quick look through old brokerage statements, it seems that my number one cost is not commissions or spreads but currency-conversion charges. These charges are mostly hidden, but they are very real. I’m a little under the weather and haven’t actually studied the numbers carefully, but I plan to.

Canadian Capitalist posted two ideas for avoiding currency conversion charges on U.S. dividends. These are good ideas, but the longer-term answer is to pressure discount brokerages to do two things:

1. Allow investors to hold U.S. dollars in RRSPs. A few do this already.

2. Start charging more reasonable currency conversion percentages. The high percentages used to make sense when banks actually had to handle cash, but for electronic transactions, banks could easily make a profit charging one-tenth of what they charge now.

Feel free to give your brokerage a hard time about this.


  1. Thanks for the mention Michael. Hope you feel better soon.

    I agree that currency conversion charges swamp any brokerage commissions. At one time when I switched out of US stocks to ETFs, I moved to TD Waterhouse simply because TDW offered wash trading.

  2. We just need to open up for more competitions!!
    You know the Big 5 will never do anything unless there's competition - typical Canadian market

  3. @CC: That sounds like a good enough reason to switch.

    @Jerry: I used to think that there was little hope with the big 5, but Royal Banks discount brokerage now offers U.S. dollars in RRSPs.

  4. I believe there are a few class action lawsuits against the banks on this issue. I'm hoping they will get settled and induce the banks to adjust their currency conversion fees.

  5. @Larry: As I understand is from your blog entry in May, the class action suit applies to RRSPs not allowing the holding of U.S. dollars. Are there suits related to the high conversion rates?

  6. I remember finding out about this issue after I started DIY investing. As CC says - the currency charges make the trading commissions irrelevant.

    It's worth shopping around for better currency rates.