The cost of converting Canadian Dollars to American Dollars with Norbert's Gambit

On Feb 26th, 2019, I initiated my first Norbert's Gambit at National Bank Direct Brokerage (NBDB).  The purpose was to exchange over 55k worth of Canadian Dollars (CAD) to American Dollars (USD) within my RRSP account.

My RRSP account at NBDB is segregated into two sub-accounts: a Canadian Dollar RRSP sub-account and a US Dollar RRSP sub-account.

The original funds were in my Canadian Dollar RRSP. There I bought 4,274 shares of DLR at $13.290 CAD; for a grand total of $56,801.46 CAD. 

I waited until the day after my trade settled (March 1st, 2019) and called NBDB requesting to transfer all 4,274 shares of DLR from my Canadian Dollar RRSP to the  US Dollar RRSP (resulting in 4,274 shares of DLR.U being transferred into the a US Dollar RRSP). I also asked them to include a note in the system so that I could sell all the 4,274 shares of DLR.U that same day. 

Shorty after the call I sold the 4,274 shares of DLR.U at $10.06491 USD for a grand total of $43,017.43 USD.

In summary, I got $43,017.43 USD for my original $56,801.46 CAD.

There were no transaction costs because trading more than a 100 shares of any ETF is free at NBDB.

The bid/ask spread when I bought DLR.TO was $0.01 CAD; incurring in a cost of $42.74 CAD because I bought at the ask price. 

The bid/ask spread when I sold DLR.U.TO was $0.01 USD; incurring in a cost of $42.74 USD because I sold at the bid price. Converted to CAD using the Bank of Canada (BoC) rate on March 1st ($1 CAD -> $0.7541 USD) this cost rounds to $56.68 CAD.

The MER of these ETFs is 0.56% annually; which translates to a cost of 0.0046% (3 * 0.56% / 365) of the market value for holding it 3 days.  For simplification let’s say we apply this tiny percentage to the initial dollar CAD amount: 0.0046% x $56,801.46 CAD = $2.61 CAD.

If the ETF was trading at a premium; then there would be a cost associated with such premium. I honestly don’t know whether the ETFs were trading for a premium or at a discount at the time I executed my trades.  If you execute Norbert's Gambit many times over your life as an investor; then this cost would probably balance itself.  So, I will assume this cost to be zero given that sometimes you would buy at a premium incurring in a cost or buy at a discount pocketing a gain.

Beyond the “typical” costs we need consider the capital gain or loss incurred by holding the ETFs for 3 days (the Forex market keeps moving). Here again I would simplify things by assuming that either the CAD/USD pair did not move significantly during these 3 days or that over a lifetime of executions of Norbert's Gambits the capital gains and losses would balance themselves.

So far the “approximate” “theoretical” cost of my Norbert's Gambit comes to $102.03 for exchanging 56,801.46 CAD. In percentage this cost rounds to 0.18% of the amount I exchanged.

That’s the theory, but what about in practice?

The BoC CAD/USD rate on Feb 26 was 0.7579 ($1 CAD -> $0.7579 USD). If we use this rate for our estimation, then we could have converted $56,801.46 CAD into $43,049.83 USD on Feb 26. This number is very close to the real amount of dollars I ultimately got converted ($43,017.43 USD). The difference is minus $32.40 USD; which could be interpreted as a “cost” of $32.40 USD ($42.97 CAD if we use the BoC exchange rate of March 1st). In percentage this cost rounds to 0.08% ($42.97 CAD / $56,801.46 CAD) of the amount I exchanged.

There are lots of simplifications and assumptions in the math above; but they are not outrageously out of place. My goal was not to calculate the cost of the Norbert's Gambit with scientific precision; but to show that it is a very cheap strategy to convert CAD to USD dollars and vice versa.

How to deposit US cash into Tangerine’s USD Savings Account?

This can only be done indirectly as far as I know.  I opened an RBC U.S. High Interest eSavings account and deposited the American dollars into it by visiting an RBC branch (the teller would do this for you)

I already had a USD Savings Account with Tangerine. In the past I had funded this account via cheques that I received. This time I had some leftover USD cash from a vacation and I wanted to deposit that back into Tangerine (and collect some interest until my next vacation). The problem though is that Tangerine does not have physical branches and so I was stuck with the cash. 

I figured that I could transfer the money from the RBC U.S. High Interest eSavings account into the Tangerine’s USD Savings Account. To achieve this you need to add the RBC U.S. High Interest eSavings account as an external account in Tangerine. This is the link where you can do that: https://www.tangerine.ca/app/#/settings/external-accounts (you will need to log in with your credentials)

As part of the process Tangerine would make two small deposits into the RBC U.S. High Interest eSavings account and you’ll need to type those numbers into the linked-to-be external account in Tangerine. Be careful to enter the right numbers (do not make a typo) and a second later you would have added/linked the RBC account as an external account in Tangerine.

After this simply “Move Money” from the RBC U.S. High Interest eSavings account into the Tangerine’s USD Savings Account. It should take a few days for the money to be transferred from one institution to the other.

I know this works, because I did it myself a week ago. 

Why did I bother? Well the RBC U.S. High Interest eSavings account has an interest rate of 0.25% while the Tangerine’s USD Savings Account offers at this time 0.80%. Also, Tangerine offers US Dollar Guaranteed Investment (US$ GIC) that I wanted to use. I actually locked the cash for 6 months at an interest rate of 1.75%. I know I won’t need this cash for at least another 6 months; so that’s why I picked the 6 month term. Not sure why Tangerine does not publicly posts the rates of the US$ GICs under one year; but Tangerine offers those as well. 

They had as of today:
  • 90 days US$ GIC   – 1.00%
  • 180 days US$ GIC – 1.75%
  • 270 days US$ GIC – 2.00%
All other terms and interests rates can be found here: https://www.tangerine.ca/en/rates/index.html

If you do not have a Tangerine account and want to open one please consider using my Orange Key: 40030923S1. We could both be rewarded with some signing bonus cash if you do that. Click here to start the process of opening a Tangerine account.

Historical Yield Spread between the Government of Canada 10-Year Bond and the Government of Canada 2-Year Bond

The chart below represents the historical yield spread between the Government of Canada 10-Year Bond and the Government of Canada 2-Year Bond. I constructed the chart using the data freely available at the Bank Of Canada website and used Google Sheets to put it together.

This is an interactive chart: you can hover your mouse over the line to get the values of the yield spread on a given date. For a more detailed version of the chart CLICK HERE.

The Y-Axis is the  yield spread between the Government of Canada 10-Year Bond and the Government of Canada 2-Year Bond in percentage points. 

The Y-Axis represents time; each data point being a month.

Please, let me know in the comments section if you find this to be useful and I will keep updating the chart as time passes.

Personal Cloud Storage in Canada

I recently started using Sync.com [1] as my personal cloud storage. I decided to avoid the big names mainly because they can scan and read your files. Sync encrypts your files locally prior to the upload to the cloud; all the while your private encryption keys remain only accessible to you: the user. You can read more details in their privacy whitepaper.

Sync servers are located in Canada and as such Canadian privacy compliance is built-in (in addition to that of the United States, the European Union and the United Kingdom).

I signed up for the trial version which provides 5GB of free storage with the purpose of evaluating the PC and iPhone apps. Shortly after, I bought the cheapest personal plan that provides 500GB of storage for $49 CAD (plus tax) per year.  For more pricing alternatives read this

For the last two days I have been uploading the files; so far so good. I blame my ISP for the slow upload!

It is early to tell; but so far I don’t have any complaints. Plus I still have 30 days and I can get my money back if get any nasty surprises.

Should you decide to give it a try, I’d appreciate if you use my referral link [1]. Both you and I will get an extra GB of storage after a successful referral. 

Finally, I’ll update this post after my 30-days-money-back-period is expired. I will let you know whether I decided to keep using Sync or if I bailed.

[1] Yanniel's Sync Referral link: https://www.sync.com/?_sync_refer=11e8cf2e0

Filing previous years income tax returns in Canada (2016 and beyond)

By law you are only required to file income taxes in Canada if you owe money to the tax man. Nonetheless, even if you are in the clear with the CRA, it might make sense to file a return, because in some cases you can get a refund or credit while doing so.

If you realize that you need to file back a return, simply find a tax filing software for the corresponding tax year and proceed with the filing.

I have used TurboTax for the last 3 years and I can vouch for the simplicity and quality of this software. You can either use the online version or the desktop version. I don’t like the idea of having my tax information stored in a website; which is why I prefer the desktop version.

You can get TurboTax from Amazon or directly from the provider.

If you are in a situation in which you do owe money to the government because you failed to file a prior tax return, then you should consider getting some legal tax advice in order to sort this out with the CRA.

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