We often hear that our Canadian dollar is closely correlated to oil prices. If you are a master forecaster of currency movements then it should be a cinch, so don’t read any further! However, even the pros have a harder time of predicting currency movements than the stock market! As Simon Taylor, a Director of the University of Cambridge Master of Finance Degree program said, “forecasting exchange rates is all but impossible.” Therefore if you’re regularly spending time in the US or even looking ahead to your upcoming winter stay in Arizona, here are 5 tips to help you manage your hard earned money better.
5 Tips to protect against currency exchange fluctuations
- Buy part of your vacation cash needs in the months leading up to your trip instead of buying it all at once. Monitor the value of the Canadian dollar regularly before you leave and buy when rates are more favourable.
- Open a US dollar denominated savings account either in Canada or in the US. Some US banks also charge fees which are lower vs. Canadian banks along with giving you better rates. As an added bonus, you are also establishing borrowing history in the US when opening an account down south. In addition, similar to Canadian bank accounts, most US bank accounts are federally insured up to $100,000 should the bank have financial issues.
- Sign up for a US dollar credit card and link it to your US dollar bank account. This allows you to bypass currency exchange service charges and ease U.S. purchases. Some Canadian banks already have branches in the US so you can start looking for potential products there.
- Have some of your investment holdings in USD. Then to avoid currency fluctuations, consider moving US dividends received to your US Savings account.
- Planning larger US transactions – such as buying a car or real property? If so, look for boutique currency exchange services that specialize in larger foreign exchange transactions. They generally have lower overhead expenses and are able to pass on savings to clients. Home work is needed to ensure you are using a reputable firm.
Lastly, balance best rates with convenience. Convenience saves you time and can provide a more enjoyable vacation experience. Most of us mere mortals cannot forecast exchange rates 6 months or a year down the road. We encourage you to speak to a financial expert for more information to help you make the right choices in managing these fluctuations.