As Canadian travelers prepare for spring break, understanding how to pay for purchases in U.S. dollars has become increasingly important. The Canadian dollar, known as the loonie, is currently near 22-year lows, making savings on currency conversion critical for those heading south of the border.

Financial expert Barry Choi, who manages the personal finance and travel website Money We Have, advocates for using credit cards when making purchases abroad. Credit cards often charge foreign transaction fees of around 2.5 percent for each transaction. This rate is notably lower than those associated with debit card use or cash withdrawals from ATMs.

Choi highlights that many consumers are unaware of the foreign transaction fees since they are often incorporated into the exchange rate. "When you receive your statements, you only see the exchange rate, not realizing the fee is included," Choi explained. Fortunately, there are many credit card providers that offer fee-free transactions, particularly through "travel cards," such as the Scotiabank Passport Visa Infinite card, Brim Mastercard, and Home Trust Visa card.

Another point Choi raises concerns the practice of obtaining a U.S. credit card from a Canadian bank. While it may seem like a good idea, these cards require consumers to pay their balance in U.S. dollars, which can complicate finance management. Furthermore, credit cards do apply a currency conversion rate for purchases made abroad. This rate is generally higher than the official interbank rate but remains more advantageous than rates offered by ATMs or cash exchanges.

Travelers often encounter the choice at the point of sale between being charged in Canadian dollars or U.S. dollars. It is advisable to always opt for the local currency. The Canadian government emphasizes this point on its travel website, warning that opting for Canadian currency will subject travelers to higher conversion rates and transaction fees, which can significantly add to the overall cost of purchases.

The loonie has been trading around 70 cents to the U.S. dollar since late November, which has made expenses even more burdensome. For example, a meal costing US$100 translates to over C$144, excluding additional fees. Amra Durakovic, a spokesperson for the travel agency Flight Centre Travel Group Canada, elaborated on the situation by recalling her experience of paying US$50 for a sushi bento box during a trip to New York City, which translates to approximately C$70. For a family of four, such costs can quickly accumulate, making careful selection of payment methods all the more vital.

In terms of alternatives, debit cards issued by traditional banks provide the second-best option for currency conversion, carrying fees closer to 3.5 percent. The least favorable method, according to Choi, involves withdrawing cash from ATMs in the U.S., which incurs both the transaction fee percentage and additional charges ranging from US$3 to US$5.

To circumvent these high costs, travelers are advised to seek out some online financial institutions that offer no-fee debit cards for foreign purchases as well as no-fee ATM withdrawals. Additionally, if travelers find themselves needing U.S. cash, it is recommended to visit a currency exchange office away from airports, where rates tend to be more favorable, rather than dealing with the typically exorbitant rates found at airport kiosks.