Author: Peter Page 27 / 31

After trying out XE Trade last year to convert Canadian dollars into US dollars for my own personal use, I decided to try it for business use. My company has a sub-contractor in the UK, and our alternatives were to send a wire transfer or a cheque. A wire transfer typically charges both the sender and the receiver fees, while a cheque takes time to send, deposit, and clear.

XE Trade was easy to use, fee-free, and fast. By “fee-free” I mean that they did not charge an extra fee on top of their regular currency exchange spread — and I’ve found their spread to be quite competitive. I just had to choose “ACH/EFT” as the sending method. I now intend to use XE Trade on a regular basis for my company.

The setup process required me to send XE Trade quite a few company documents electronically. Once set up, however, I just had to enter the recipient’s bank account information and then pay a bill as if it were any regular bill (such as a credit card bill). For more information on that general process, see my previous review.

Here is the timeline in business days for how long it took for me to set up a business account with XE Trade and send a payment in Canadian dollars from a Canadian bank to be deposited in British pounds in a UK bank.

Day 1: Registered for an XE Trade account
Day 1: Received an e-mail (in my spam folder) asking that I send over scanned documents (driver’s licence, certificate of incorporation, articles of association, names of shareholders owning 25% of more of the business) to verify my identity
Day 2: Received a reminder e-mail asking that I send over scanned documents to verify my identity
Day 3: I sent over scanned documents
Day 4: Received notification that the account was activated
Day 5: I initiated a trade (CAD in Canada to GBP in the UK) with a locked in rate based on that day, chose “ACH/EFT” as the sending method, and paid the bill through my bank’s online interface
Day 8: Received a notification e-mail that the money was sent to the recipient
Day 11: Money was deposited into the destination account; no fees were deducted on either end

The time between sending and receiving money took 6 business days.

I’ve seen the term “laddering” a lot on highinterestsavings.ca but many people don’t understand what it means. Many people, if asked whether they ladder their investments, will respond with “What is laddering?”. Here’s a short explanation of laddering in the context of term deposits aka GICs.

Laddering not a special type of account, nor something that is only available to some people, nor something you have to apply for. Rather, it is a simple strategy for increasing the interest rate earned on your savings using standard GICs.

Whether you are heavily invested in stocks or whether you are ultra-conservative and won’t put your money anywhere other than a savings account at a major bank, you’ve probably put money in a GIC or thought about it. There are a couple of common concerns regarding GICs:

• What if you don’t want to lose access to your money for an extended period of time?
• What if interest rates rise in the future and you miss out on a better rate?

Typically, the savings account offers the lowest rate, and the longer the term of the GIC, the higher the rate. If you’re looking at a 1.5% savings account and a 1.5% 1-year GIC, especially if you think interest rates have hit rock bottom, there is probably no point to investing in the GIC. With the 1-year GIC, you would be giving up liquidity (easy access to withdraw cash) for an arguably negligible benefit (being guaranteed 1.5% for a year and being better off were the savings account rate to drop during that time). And you might look at a 5-year GIC at 2.75% and decide that it’s not worth stashing away your money for so long. You struggle to try to “time” the market; in other words, how do you know when is the right moment to put all your money in a long term deposit? So your money ends up sitting in your savings account unto forever.

Laddering attempts to address those concerns and is best illustrated with an example. Suppose you have $5,000 in savings. You can split that into 5 x $1,000, and start by opening 5 separate GICs: a 1-year, a 2-year, a 3-year, a 4-year, and a 5-year. (Another common surprise for some is that every major financial institution offers 1-year, 2-year, 3-year, 4-year, and 5-year GICs, and often shorter and/or longer terms as well.) This means that you can count on some money becoming available again every year. As each term matures, if you don’t need that money, you can invest it in another 5-year term. If you repeat this process (re-investing each $1,000 + interest amount in a new 5-year term when it matures), you will always be invested in the longest term at the highest rate.

In other words, with laddering you split your money into separate investment bundles, all with different terms and maturity dates, so that you can take advantage of higher rates without locking away all of your money. You can vary this approach in a multitude of ways, such as having 3 years as your longest term or making each bundle have unequal amounts. Also, this concept is not limited to GICs; it can be applied to other types of investments as well.