Jai Shri Ram!

Norbert's Gambit

After moving from America to Canada, one of the things that I needed to do was to move over some of my savings across the border. I’m not moving over my entire portfolio in one go, I plan to leave my retirement (401K) accounts untouched and also only transact on the investment accounts as needed. I do plan mostly to move over liquid cash and savings over for a few reasons -

  • Since our immigration situation in the US was of a temp worker, we had a no-risk savings heavy portfolio. This is no longer the case in Canada and I’d like to convert a sizeable part of that into a more growth focussed portfolio.
  • The interest rates in both countries are similar and hence it makes more sense for us to have cash accessible.
  • In the future we intent to invest in real-estate to buy our first home and it’d be good to move over money to cover the downpayment earlier.

Converting money from one currency to the other is always going to leave you short because of the currency exchange fees, the thing that you might not realize that there isn’t a flat rate or flat fees, depending on where you exchange money you can get different rates. If you’re dealing with small amounts of money for say miscellaneous expenses for a vacation your best bet is to use your

  • No FX Fees credit card, with decent rewards you might even come out ahead.
  • Debit card to withdraw money from an ATM in a foreign country. Some banks like Schwab will reimburse you any fees that an ATM provider might charge, even abroad!

It’s important to note that in both these cases you’re not getting the inter-bank exchange rate (the rate that google shows you) but you get the rate set by your credit/debit operator network in most cases Visa or MasterCard. While this isn’t the same as the inter-bank rate it’s fairly competitive and for a few thousand dollars it’s good enough.

For larger expenses, rent and living long term you typicall have to go through with a bank or use a service like Transferwise. It’s best to compare prices for both, unless you’re transacting over $100,000 where the bank will give you a preferential exchange rate you’re better of going with Transferwise. Do note that wire transfers are typicall much faster than a third party service and going with banks might give you peace of mind.

With the general information out of the way lets talk about Norberts Gambit. I’m not going to describe it in great detail nor bother listing the exact steps because other people have already done that better than I could. The general idea however is this, if you could buy a commodity at your home country which is valued the same in the other country then you could potentially sell it in your destination. Thereby not incurring any fees though you might encounter other fees like sales tax, but that’s just the general principle. Norberts Gambit does the same thing with ETFs that are cross listed in stock exchanges in the US and Canada, while you could use any fund that meets the cross listing criteria there is a special fund DLR.TO and DLR.U.TO whcih hold US dollars making them fairly stable and the preferred funds to perform the exchange.

Over the last couple of weeks I exchanged USD 9,987.39 for CAD 13,235.37 which equates to an exchange rate of 1 USD = 1.325 CAD. Google tells me that the current exchange rate is 1 USD = 1.33 CAD, so the rate that I got is quite decent. The best part about Norberts Gambit is that it scales beautifully and as a software engineer I like solutions that scale. With the almost fixed costs of the commissions per trade the more money you excahge the better rate you get. Also for comparison I’m also sharing the rates for Transferwise where you’d get CAD 13,154.75 for USD 9,987.39 i.e. a difference of CAD 81.37 and to be honest for $10K USD Transferwise is very competitive and much faster than Norberts Gambit. For higher amounts that’s a totally different story and this is where the gambit truly shines.

I do also want to add a disclaimer and caveat when it comes to interpreting the preceding paragraph, there are a few things to keep in mind -

  • Norberts Gambit is typically spread over atleast a week. This is the time it takes for the first trade to settle, the journalling of the ETF shares and for the time it takes for the second trade to settle. So the exchange rate is spread out over a period of time and if you use a volatile stock or ETF then you might get dramatically different rates (maybe much better or significantly worse)
  • Comparing the rates spread over a week isn’t scientific with the inter-bank rate nor the rate that Transferwise offers. However I believe that it does illustrate the point and the savings are absolutely real.

Finally the last piece of the puzzle that I think is important in performing the Gambit is understanding that you need to first have the USD in a Canadian Bank account before you can perform the Gambit. It’s very important to make sure that you transfer over USD from America to Canada without accidentally having the banks convert the money. Canadian USD accounts arent the same as American USD accounts, while this might seem to be obvois it’s still important to understand this. You can’t link your Canadian USD bank account with any American bank account. And have to first either wire or write a personal check to transfer over USD. My credit union had a 30 days hold on my USD transfer as I’m a new customer so doing the Gambit end to end took me more than a month! These times might be shorter for you based on your account and relationship with your bank but it’s important to note that you can’t rely on Norberts Gambit to quickly exchange money.

I’ll have to do the gambit a couple of more times to move over all the funds that I need to convert, but with the first one out of the way the other ones should be more straightforward.

This project is maintained by nikhilbhardwaj