What To Do About Changing Your Money

First of all, don’t use dollars down here



So you’re all packed and ready to go on your trip to Mexico and you have one last thing to do and that’s get some spending money, what now? North American travellers to Mexico have a number of choices as both US dollars (USD) and Mexican Pesos (MXP) are widely accepted; Canadian dollars (CAD) not so much.  For less experienced travellers it’s typically a last minute decision, sometimes not until they actually arrive at their destination. For experienced travellers it is more likely an early decision and one they will benefit from. The three main categories of people who each face progressively bigger decisions with respect to costs and potential savings are vacationers, seasonal renters and foreign homeowners. With a bit of knowledge everyone can make their hard earned cash go a little farther.

Firstly, it’s wiser to spend the local currency whenever possible and the more you will be spending the more important the currency decision. Using cash most of the time is convenient, easy and worry free. For Cabo, that means the peso.  All currencies fluctuate constantly and paying attention to posted rates can save you many dollars, whether Mexican, US or Canadian.  Paying attention for Americans is easier with just the USD/MXP exchange rate to consider. For Canadians, especially snowbirds, both the USD/CAD exchange rate as well as the MXP /CAD exchange rate will be a concern.

For the typical all inclusive vacationer, the package price was likely set in USD. Your currency choice for spending on arrival is where you will want to pay attention for the week you’re here.

For snowbirds and foreign home owners you need to pay attention for longer than a week and look forward in time.

More recently the MXP exchange rate with the USD or CAD has been trading on the currency markets in a relatively tight range with each USD dollar getting 18 to 21 MXP and each CAD dollar getting 14-16 MXP. The long term trend in both cases is to the upside, meaning a weakening peso, hence more pesos to each dollar.

The USD/ CAD exchange rate on the other hand is trending to a weaker CAD so buying USD is getting more expensive. The Canadian dollar is still regarded as a “petro currency” so it will be affected by the global price of oil and fluctuate accordingly.  In other words lower oil prices can further weaken the Canadian dollar relative to the US dollar, but not necessarily fewer pesos for a Canadian dollar.

The easiest way to see currency relationships yourself is to Google the specific exchange rate. I like to use www.investing.com. Go to the Forex tab, click on the currency pair you want to convert, and you will get the current exchange rate, charts and related news stories. Look at the monthly, weekly and daily charts for trends. Smart buyers accumulate the currency they will need by making multiple purchases over time and “average in” unless of course you see a spike in the chart that creates a short term opportunity in your favour to get what you need. Timing and patience can really pay off when you have the time and inclination to monitor it regularly. 

The terminology is also important to understand. Spot rate is the rate you see right now online. While this is the currency market quote, you won’t get spot when you transact. Commercial money changers, (banks or large businesses), take a cut known as the spread.  There is a built in spread whether you are buying or selling currencies which will be about 3% to 5% of the transaction. The closer you can transact to the spot rate, the lower the spread. This is where you pay attention to how many pesos you should be getting from a bank, a larger retailer, or your friendly local merchant. Local merchants have smart phones too and watch the exchange rate diligently and will gladly relieve you of your USD’s at a 15% spread or greater.

Alternatively, shopping at retailers or restaurants who accept credit cards in Mexico will often get you the best rate as major charge card companies will only build in a 2-3% spread.  But you need to be diligent, like anywhere else. Don’t let the card out of your sight and watch your statement closely for fraudulent transactions once you get home. Cash is safer.

For many years it was best to buy the local currency when you got to the country and avoid double handling commissions in your home country but banks operating in Mexico have wised up, so using your Interac card to get money from bank machines is no longer advantageous. In the past month I have tested a number of bank machines and have paid a spread of 5-7% as well as local and home bank service charges - that’s three levels of fees! Who ever said my banker was my friend.

For snowbirds spending thousands in Mexico it’s better to get the bulk of the currency before you come down and just top up your needs while you are here.  Pre-purchasing also locks in the rates and avoids any nasty surprises halfway through the season.

You also want to transact directly from your source currency to your intended spending currency.  I have seen Canadians go to the bank and get USD because they are coming to Mexico. They bring their USD down here and convert it to MXN and end up paying 10% or much more in total exchange rate spreads depending on how they use their USD here.  At a minimum, that’s an extra and avoidable $50 per $1000, ouch!

So doing a little homework and being a savvy traveller can save you hundreds of hard earned dollars. Wouldn’t you feel better giving a Mexican a big tip instead of having the bankers slide the money out from under you unaware?

Cam Renaud and his wife Eva Korpela are Canadian snowbirds and are both retired Chartered Financial Analysts and retired Chartered Professional Accountants. Cam writes and Eva edits. They have been coming to Mexico for 14 years.