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Norbert’s Gambit is a strategy Canadians use to avoid the typical 1% to 4% currency conversion fees when exchanging between Canadian dollars (CAD) and U.S. dollars (USD). It works by utilizing stocks that trade in both currencies. Instead of using banks or foreign exchange services, the method involves buying shares in one currency and selling them in another, bypassing the usual exchange fees.
How Norbert’s Gambit Works
Currency exchange typically involves fees charged by banks or foreign exchanges, which take a percentage of the transaction. For example, when exchanging $100 CAD to USD, a 2.5% fee means only $97.50 will be converted. While this fee may not seem significant for small amounts, it adds up with larger transactions, such as converting $250,000 CAD for an investment, leading to a $6,250 fee.
Norbert’s Gambit was devised to eliminate this fee by using a discount brokerage. The process involves buying shares of a stock that trades on both Canadian and U.S. exchanges, then selling them in the other currency. The only cost incurred is the commission on the two trades, which is usually around $20.
When to Use Norbert’s Gambit
Norbert’s Gambit is ideal for larger currency exchanges. With two trades at $10 each, the fixed cost is $20. Since foreign exchange fees are typically around 2.5%, Norbert’s Gambit only becomes cost-effective when converting more than $800.
However, if time is of the essence or the exchange amount is small, traditional methods may be more convenient. The process typically takes around five days, making it less suitable for urgent transactions.
Potential Savings
The savings with Norbert’s Gambit can be substantial. For example, if exchanging $10,000 USD, using a bank might cost $13,100 CAD, while Norbert’s Gambit could bring that down to $12,850.19, saving around $250. On smaller amounts, such as $1,000 USD, the savings might be minimal, around $6.98.
For very small exchanges, Norbert’s Gambit might actually cost more. For instance, exchanging $100 USD could cost $17.30 more using this method than through a bank.
When to Avoid Norbert’s Gambit
Norbert’s Gambit may not be worth it for small transactions under $800 due to the fixed trading costs. It’s also not ideal for time-sensitive exchanges, as the process takes about five days to complete. In times of market volatility, currency fluctuations during the waiting period could also reduce the expected savings.
Alternative Ways to Save on Currency Conversion Fees
If Norbert’s Gambit isn’t feasible, there are other ways to minimize conversion costs:
- Compare bank rates: Some banks offer better rates than others.
- Avoid cash exchanges: Bank transfers or drafts tend to have better rates than cash exchanges.
- Limit exchanges: Only exchange money when necessary to avoid multiple fees.
- Use USD credit cards for U.S. transactions: This avoids foreign transaction fees, which are often around 2.5%.
Conclusion
Norbert’s Gambit is an effective way to save on currency conversion fees for larger amounts, especially when there’s no rush to complete the transaction. For smaller amounts or when time is limited, traditional exchanges might be more convenient.
