(Updated June 2020 to remove Rogers and Fido Mastercards which now only rebate fx fees on US currency.)
Canadian banks love it when you travel.
When you travel outside Canada and use your credit card or withdraw cash from an ATM, your bank converts the amount you charge or withdraw into Canadian dollars at a fair exchange rate, close to the Bank of Canada rate, but then adds 2.5% or more, a foreign exchange (fx) fee, for something that costs the bank almost nothing. And for an ATM withdrawal, in addition to the fx fee, most Canadian banks charge a transaction fee for using a foreign ATM.
You can avoid both fees.
Credit cards: the best deal at the moment (June 2020) is the the Home Trust Preferred Visa. This card doesn’t charge fx fees and offers 1% cash back. (If you decide on a Home Trust card, apply early; the approval process is very slow.) The Greedy Rates website has an article comparing the Canadian credit cards that offer fx deals—check it for the latest information. Keep in mind that cards offering good fx deals may not offer many extras. I use my regular bank card to buy airline tickets, no matter what currency, as that card offers travel perks such as travel delay and lost luggage insurance.
Note that within the EU your foreign credit card may be refused. This is unlikely in popular tourist towns but may happen elsewhere. Keep some cash on hand. (That’s because banks charge merchants a processing fee for each credit card transaction. The EU limits that fee to just 0.3%. This limit doesn’t apply to non-EU cards. Canadian and other foreign banks charge merchants ten times that. Touristy places have adjusted their prices to account for tourists and charge higher prices; off the tourist path merchants expect EU cards and don’t charge inflated prices, but may refuse the extra cost of accepting a foreign card.)
ATM: When you make an ATM cash withdrawal outside of Canada your bank will add a 2.5% or more fx fee, the same one it adds to credit card purchases, and it may add an ATM transaction fee. You can avoid cash withdrawal fx fees and ATM fees with a novel prepaid Mastercard from Stack, a Toronto-based firm appealing to millennials and, oddly, to an old traveler like me. You must add funds to the Stack card before you can use it (it is a prepaid card, not a credit card) but that’s easy as Stack takes Interac transfers. With my iPhone I use my banking app to make an Interac transfer to the Stack card, ten minutes later see it in the Stack app, then I withdraw it without any fees or fx. That’s a free pint of beer or more every time you get some cash! Stack has limits on how much cash you can withdraw per transaction and per month—make sure it fits your needs.
At home: I like to have some foreign currency with me at the start of a trip. I haven’t found a way to buy it in Canada without an exchange fee, but rates vary. Airport currency exchanges are the worst place to buy foreign currency—your bank will charge less. Specialty currency exchanges such as the Vancouver Bullion and Currency Exchange (recommended) have better rates than your bank. I take enough foreign currency with me to see me through the first few days. On the first day I find an ATM and use my Stack card to get some local currency.
Thanks to Danelle for pointing out the new rates on the Home Trust card.