Reducing the cost of cross-border holiday shopping

Grandma didn’t need a CFP to tell her a penny saved is a penny earned. Taking a cue from her, it may be a good time to talk to clients who are considering cross-border holiday shopping about ways to maximize the value of U.S.-dollar purchases.

Virtually all Canadians are aware of the new purchasing power of the red-hot loonie, particularly when buying items in U.S. dollars. But do they know all the costs involved with buying U.S. goods?

Like many Canadians, Dave Cooper, an Edmonton-based CFP with Tower Wealth Management, says he has been enjoying the increased purchasing power of the loonie. He suggests the best way to maximize purchasing power is to do your research on how much a U.S. purchase will cost in real terms.

These extra costs may be only extra pennies on the dollar, but they can still eliminate the purchasing power of the loonie, particularly when the Canadian dollar’s value is only a handful of pennies more than that of the greenback.

Cooper says clients budgeting for the holidays have to consider a variety of factors, which include the price differential between the Canadian and U.S. sticker price, what it will cost to bring the item across the border and what it costs to exchange Canadian for U.S. dollars.

For example, a client who uses a Canadian-dollar-denominated credit card to buy items in U.S. dollars may not be aware of the exchange fee they’re charged.

This very issue is in dispute in the court right now. On Thursday, the Ontario Court of Appeal allowed a class action lawsuit against TD Bank to proceed. The suit claims TD charged its Visa cardholders unauthorized and undisclosed currency exchange fees between 1986 and 2003.

“I always look ahead at whatever credit card I’m intending to use and what they’re using for exchanges,” Cooper says. “You can usually get that info off the credit card website. Some sites, for whatever reason, don’t like coughing that up, and you will have to phone one of their contact numbers.”

Cooper says if you’re going to be making lots of online purchases in U.S. dollars, instead of using a credit card, you might want to consider a service like PayPal.

“The U.S. purchases I have made have tended to be online purchases,” he says. PayPal, for example is the clearing online payment system for eBay that can be used by individuals or companies. “It gives a favorable rate, although you’re still going to lose about 2% on the exchange.

“If you buy online, you also have to look at the price of shipping. Most of the courier services like UPS will charge you a pretty penny to clear the item for you at the border.”

Where the product is manufactured also figures into the price.

“You’re not going to pay anything on the duty on the side unless it’s made outside the North American free trade area. So if it’s made in North America, you’re not going to pay duty, but you’re going to have to have somebody to clear it through customs, and you’ll have to pay GST,” Cooper says. “You have to mathematically calculate all those numbers, and that’s how you’ll get the real difference in price to determine whether it makes sense to buy it down there or up here.”

Cooper concedes that the math is a bit of a hassle, but it’s worth going through, particularly if a client is considering purchasing a big-ticket item like an automobile, where the discrepancy in costs can be thousands of dollars.

Bank of Montreal says clients can offset some of these costs by using specific U.S.-denominated banking products.

“The appeal of U.S.-dollar-denominated bank accounts, credit cards, term investments and travel-related medical insurance is rising,” says Sid Chopra, director of everyday banking, BMO Bank of Montreal. “We’ve seen increasing interest in products and services designed to help our customers manage their everyday banking and financial needs in U.S. currency from both sides of the border.”

BMO suggests Canadians consider using a U.S.-denominated credit card. For instance, BMO offers the BMO U.S. Mosaik MasterCard, for which all transactions are billed and paid in U.S. dollars, eliminating the uncertainty associated with exchange rates.

Clients might want to inquire at their banking institutions about what types of U.S.-dollar chequing accounts are offered, BMO says. It offers a U.S. chequing account that allows customers to use one of the 500 BMO Harris banking machines without a surcharge or network accessing fee.

Also, the bank suggests clients consider a U.S. Dollar Term Investment, which provides interest growth ranging from 3.70% to 4.10% for deposits ranging from $1,000 to $500,000.

Filed by Mark Noble, Advisor.ca, mark.noble@advisor.rogers.com

(11/16/07)

Mark Noble