Credit card Forex - Spot price, or daily set prices?

[EugW]

I was just wondering how credit card companies in Canada usually determine their forex / US dollar currency conversion prices. Is it just the spot price plus commission, or is it set (fixed, based on the spot price) at arbitrary times of the day?

P.S. Today seems like a good day to pay for a few large US$ purchases I had in the queue. The US dollar is dropping through the floor.

[rf134a]

It looks like spot @ time of transaction + commission (1.8% - 3%). I've made 2 purchases within 5 minutes of each other and each transaction had a different rate on my Visa. It was only 12 pips, but that tells me that their system updates very frequently and Visa doesn't lose out on forex.

[asdfvcx]

I don't know if it's spot or daily.

However, it's based on time the item posts to your account, not the time of your transaction. So even though you make two transactions within minutes, it would be quite common for them to post on different days.

[EugW]

Interesting thanks.

I made some payments yesterday and they should post to the account by tomorrow. Hopefully the CAD$ won't drop too far in the next couple of days.

BTW, I got the invoice for one item when the CAD$ was still in the 80s. Luckily they allowed me to delay payment. Saved me a 3-digit CAD$ amount. Best time would have been late October though.

As for close transactions posting on different days, shouldn't you just be able to tell by the date listed on the monthly statement?

[tng11]

It is based off the spot price- different posting times can have an effect on the exchange rate. Normally it is Visa/Mastercard's rate which is the spot rate+1% and then the bank's markup of 2.5% applied on top of that. I've had transactions that posted on the exact same day but the exchange rate was 1% different between them, apparently that was because the CAD fell 1% in the few hours between the transaction posting.

ATM withdrawals are a different story- they are based off daily rates set in the morning. One time I withdrew USD late in the afternoon at slightly below spot because the USD had shot up during the morning.

[EugW]

The amount posted today. I got a rate of CAD$1 = US$0.9181 (including commission).

On Monday when the transaction was done, the spot rate was probably US$0.945. This morning the spot rate was probably around US$0.955ish.

So, if the transaction time is when they base the conversion rate then it's around 3% total commission, but if it's based on the posting date, then the commission is probably closer to 4%ish.

[simms]

spot + 2.5% on most cards.

[EugW]

spot + 2.5% on most cards.

So that would suggest it's probably based on the transaction time as opposed to the final posting time then on my AmEx )(since two days ago currency conversion rates would suggest a <3% commission, whereas today it would mean a 4% commission).

[bcbgboy13]

The amount posted today. I got a rate of CAD$1 = US$0.9181 (including commission).

On Monday when the transaction was done, the spot rate was probably US$0.945. This morning the spot rate was probably around US$0.955ish.

So, if the transaction time is when they base the conversion rate then it's around 3% total commission, but if it's based on the posting date, then the commission is probably closer to 4%ish.

Not sure where you got your data but this is the history for the last two days:

Date Open High Low Close
Tue, Nov 10 2009, 12:00 GMT 0.947 0.953 0.9424 0.9521
Mon, Nov 9 2009, 12:00 GMT 0.9323 0.948 0.9299 0.9467

[asdfvcx]

According to my actual AMEX bill:

1. They use interbank rates plus 2.5%
2. They use the rate from the business day prior to the processing date.

I expect processing date is the same as posting date, although I'm not sure. The front of my bill lists the transaction and posting dates for each charge. And the fine print on the explanation in the back of my bill mentions processing dates. Nicely confusing.

[EugW]

Not sure where you got your data

I was checking the spot prices at random times during the day, just for my own interest.

P.S. Today is the 11th, and the rate is well over 95 cents now.

According to my actual AMEX bill:

1. They use interbank rates plus 2.5%
2. They use the rate from the business day prior to the processing date.

I expect processing date is the same as posting date, although I'm not sure. The front of my bill lists the transaction and posting dates for each charge. And the fine print on the explanation in the back of my bill mentions processing dates. Nicely confusing.

Hmmm... Interesting. So it might make more sense to wait a day after a big move in currency rates before purchasing (if the move is in your favour). If so then... Doh!

[asdfvcx]

Hmmm... Interesting. So it might make more sense to wait a day after a big move in currency rates before purchasing (if the move is in your favour). If so then... Doh!

Except if processing date means posting date, you run into the problem that you never are exactly sure when the posting date will be.

[EugW]

The amount posted today. I got a rate of CAD$1 = US$0.9181 (including commission).

Oops. The statement showed it actually posted the same day. It just didn't show up in my account until two days later.

I did two US transactions on Nov. 9 timed relatively close to each other. According to the records, although they showed up later, one posted on Nov. 9 and one posted on Nov. 10.

The exchange rate on both is basically identical, at US$0.91814. So, this seems to confirm it's not the posting date that matters, but the transaction date, at least with AmEx. (Otherwise, the rate on Nov. 10 would have been better, since the currency conversion rates changed relatively significantly over those few days.)

[Sanchez]

Normally it is Visa/Mastercard's rate which is the spot rate+1% and then the bank's markup of 2.5% applied on top of that.

There is really an additional markup of 1% by Visa/MC on top of the 2.5% charged by the card issuer? That would be news to me - do you have a reference?

I had understood it was just the 2.5% on top of the actual market rate obtainable by Visa/MC which on the interbank market is going to be basically spot (maybe a pip or to different).

If the total markup is really 3.5% then these strategies of using a USD card and coverting the money elsewhere start to make sense (even if you lose the rewards and pay 1% to convert).

[tkyoshi]

There is really an additional markup of 1% by Visa/MC on top of the 2.5% charged by the card issuer? That would be news to me - do you have a reference?

I had understood it was just the 2.5% on top of the actual market rate obtainable by Visa/MC which on the interbank market is going to be basically spot (maybe a pip or to different).

If the total markup is really 3.5% then these strategies of using a USD card and coverting the money elsewhere start to make sense (even if you lose the rewards and pay 1% to convert).

Yes it is pretty standard, your card agreement should state something to the effect that the exchange is based off the rate set by VISA/MC International (which includes the 1%) plus the Forex currency fee (2.5%).