If you regularly conduct business in the United States, make trips across the border or ownU.S. real estate, you may want to consider a U.S. dollar bank account.
A U.S. dollar bank account is an account that holds U.S. dollars (USD) for you at your Canadianbank—no conversion to Canadian dollars (CAD) necessary. You might want to keep your USD in its native currency for the following reasons:
- You have U.S. clients that want to pay you in USD.
- You are planning a major purchase, like a vacation home,in the U.S.
- You are a Canadian resident working for a U.S. employer and getting paid in USD.
The ability to keep your money in its original currency could save you a substantial amount of money, but that’s only one of several reasons to open a U.S. dollar bank account at a Canadian bank.
Why Would You Open a U.S. Dollar Bank Account?
According to the U.S. Department of Commerce’s International Trade Administration, Canada became the United States’ top trading partner in 2021, trading over $2 billion USD in goods and services daily.
While individual transactions may make up a small portion of that amount, it is undeniable that most Canadians will have financial transactions with our neighbor to the south at some point, so there are various advantages to having a U.S. dollar bank account at their home branch for most Canadians.
Avoid Transaction and Conversion Fees
If you’ve ever tried to conduct financial transactions across the border, you know that trying to transact in a foreign currency can incur high foreign transaction and conversion fees. Exchange rates are unpredictable as well.
This is where having a U.S. dollar bank account is especially handy. Foreign transactions feescan come with international transfers and expensive conversion fees.Most Canadian banks charge between 2.5% and 3% in foreign transaction fees and conversion fees of around 1% may be added on top of that.
Compounding the pain, is the knowledge that you are unlikely to get the best exchange rate for your currency conversion.When you count on the banks to convert your currency for you, not only do you miss out on the opportunity to time the exchange to your advantage, you probably aren’t getting the best market rate either. (An extra strategy for avoiding conversion fees is to useNorbert’s Gambit.)
Pay U.S. Bills More Conveniently
A secondary advantage to having a U.S. dollar account isthat transfers between Canada and the United States can be faster, making paying U.S. bills easier.International wire transfers, for example, take two to fivebusiness days and often come with theirown set of fees.
These fees can include separate charges for sending and receiving money, as well as correspondent fees, in addition to an expensive exchange rate. Meanwhile, a U.S. dollar account within your own bank allows you to save on fees and pay your bills online in USD.
To Earn Passive Income
A U.S. dollar bank account could even be utilized for passive income, as the right savings account will allow you to accumulate interest on your currency. When you want to convert it to CAD, you can then time the transaction for the most profitable exchange rate.
To Invest in U.S. Securities
Lastly, it is also possible to open a U.S. dollar investment account, allowing you to own U.S. securities without having to worry about conversion fees or exchange rate fluctuations in the same way you can avoid them with a U.S. dollar bank account.
How Do You Open a U.S. Dollar Bank Account?
If you are looking to open a U.S. dollar bank account at your local Canadian bank, you are in luck. All the major banks, and even many of the smaller banks, have a U.S. dollar bank account option and opening one is simple. In many cases, you can open an account online or over the phone, without ever having to set foot inside a bank.
Opening a bank account as a Canadian in the United States, however, is trickier. It may be hard to find a bank that will allow you to open an account if you are not residing in the United States.
In 2010, the U.S. Government implemented the Foreign Account Tax Compliance Act (FATCA) (a self-reporting requirement)in an effort to crack down on financial crimes. As a result,U.S. and foreign banks that service U.S. citizens are required to identify customers that may be subject to FATCA, creating a regulatory burden that banks prefer to avoid.
As a result, U.S. banks are working harder to verify the identity of their customers in an effort to comply with “know your customer” (KYC) policies.
To open an account in the U.S., Americanbanks require a U.S. Social Security Number (SSN)or individual Taxpayer Identity Number, (ITIN) as well as a U.S. address. That means opening a bank account in America is probably only realistic for those who still have a residence there.
However, if you really want an account in the United States but can’t meet the requirements above, there is a third option: Many Canadian banks have branches in the United States that will allow Canadian residents to open an account. They make it even easier if you already have an account with them back home. RBC, BMO, TD and EQ are just a few that offer a variety of bankaccount options tailored to Canadians who conduct business across the border.
What’s Better: A U.S. Dollar Bank Account in Canada or a Bank Account Based in the U.S.?
It is without a doubt easier to open a U.S. dollar account at a Canadian bank than at a bank on U.S. soil.
That said, opening an account in the United States could be worth the pain if you need to establish a financial or credit history there.
While having a U.S. dollar bank account solves many of the costs associated with doing business in USD, having a U.S. account in the United States is likely the better solution for those that spend a substantial amount of time in that country.
For example, snowbirds may benefit from establishing a credit history in the U.S. to qualify for loans and credit cards there.
The convenience of visiting a branch in the United States for service and being able to pay with your debit card at stores and restaurants are just some of the perks that having a U.S.-based bank account affords you if you’re spending a lot of time in the lower 48.
Just keep in mind, if you do manage to open an account in the U.S., the Canadian government expects you to report foreign assets (bank accounts included) that total over an aggregate of $100,000 CAD by filing Form T1135. You may also be subject to capital gains tax on both sides of the border, so it may be worth talking to a tax professional who specializes in cross-border clients if you have assets in both countries.
A U.S. Dollar Bank Account vs. A U.S.-Based Bank Account
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A Question of Time
Ultimately, whether you should open a U.S. dollar account or a bank account in the U.S. will largely come down to how much time you are spending in the United States.
For the Canadian that is conducting business across the border or being paid a U.S. dollar salary but is only traveling to the United States occasionally (or not at all), a U.S. dollar bank account with your local Canadian bank is likely the easiest solution.
If, however, you are looking to put down some financial roots in the United States, then it may be worth the time and effort to open a U.S.-based account with either an American bank or at a U.S. branch of a Canadian bank.
Whatever you decide, be sure to be on the lookout for the best deal. Many Canadian banks will offer a waiver of monthly account fees, a high interest rate and even a linked U.S. dollar credit card.
Avoid accounts that have a minimum account balance requirement unless they are offering you some combination of the above or a financial incentive for opening the account that makes the balance worth maintaining.
