Recently I started looking into the minimum balance required to make a self directed brokerage account a good choice. At first, it appeared that Questrade was the best choice for an RRSP account for someone with only a little cash to invest but who wanted to purchase stocks. (For more details, please see Questrade Has the Lowest Annual Fee RRSP Brokerage Account with No Minimum Balance: Or Does It?) However, a closer scrutiny led to a startling new conclusion:
an RRSP self-directed account from RBC Direct Investing may be better!
UPDATE February 2014: RBC Direct Investing has enhanced its offer. Now all accounts, no matter how small, are also automatically qualified to buy and sell shares and ETFs for $9.95 per trade.
The Minimum Balance for a No Annual Fee RRSP Brokerage Account at the Other 4 Banks
BMO InvestorLine, CIBC Investor’s Edge, Scotia iTrade, and TD Waterhouse offer no-annual-fee RRSP accounts if you have a balance of $25,000.
The Minimum Balance for a No Annual Fee RRSP Brokerage Account at Other Canadian Brokerages
Credential Direct, Disnat, Qtrade and Virtual Brokers each require a $15,000 minimum balance for a no-annual-fee RRSP account.
Questrade’s No-Annual-Fee but There is an Inactivity Fee RRSP Brokerage Account
Questrade does not require a minimum balance to have a RRSP account. However, for clients aged 26 and older who have a balance of less than $5000, there is a requirement to execute one commissionable trade (for $4.95) per quarter, or an inactivity fee of $19.95 plus taxes per quarter is charged. This inactivity fee may make it desirable for some investors to wait until they have about $3000 before setting up an RRSP account. (For details, please see Questrade Has the Lowest Annual Fee RRSP Brokerage Account with No Minimum Balance: Or Does It?)
RBC Direct Investing’s Enticing Deal: A No Minimum Balance, No Annual Fee RRSP Brokerage Account
RBC Direct Investing actually has a better plan than Questrade for the buy-and-hold investors.
Direct Investing does not require a minimum balance to open a RRSP account.
Normally, you’d require a minimum total of $15.000 worth of investments with RBC to avoid paying an annual account fee. (Note: that’s still $10,000 less than the minimum at the other 4 big bank brokerages.)
BUT they have come up with an incentive: They do not charge any annual fee for a RRSP account if you are on an automatic contribution plan to the account.
You must fill out a Pre-authorized Contribution Form and set up a contribution of at least $100/month ($300/quarter) to your RRSP account.
What really surprised me? The contribution does NOT have to come from a RBC account! I specifically asked an RBC representative, via LiveChat, if I could make the contribution from my ING Direct or CIBC account. The answer was: Yes!
The exact reply was “The Pre-Authorized Contribution does not have to come from an RBC bank account, however, you must complete the “Pre-Authorized Contribution” form.”
I confirmed this a second time by phoning RBC Direct Investing.
RBC Direct Investing Vs Questrade Self Directed RRSP Account Trading Fees
UPDATE: February 2014: RBC Direct Investing has now changed its pricing structure. All trades are $9.95 each (or less) no matter how often you trade or what your account balance is.
Direct Investing offers a discounted trading fee of $9.95 for account holders
with $50,000 in household assets at RBC or who make 30-149 trades per quarter. Their regular trading fee, however, is $28.95 per purchase or sale made using their online investing site or mobile application. (It costs more than that if you phone them and verbally tell them which trade you want to make.)
Questrade charges $4.95 per regular trade, up to a maximum of $9.95 per trade based on a fee of $0.01share.
That makes it sound like RBC Direct Investing’s price is too high for a low balance RRSP account. But it depends on what type of investor holds the account.
For Low Stock Trading Volume Low Balance Accounts RBC Direct Investing is Best from a Fee View
At Directing Investing if the investor intends to buy only one stock per year, their total fee is ($0 setup fee) + ($0 annual fee for a low balance account) + ($0 inactivity fee) + ($
28.95 $9.95 one commissionable trade) = $9.95 28.95 per year.
At Questrade, the investor who buys only one stock per year pays a total fee of ($0 setup fee) + ($0 annual fee for a low balance account) + ($67.63 inactivity fee) + ($4.95 one commissionable trade) = $72.58 per year.
That assumes the Questrade investor is 26 years of age or older and that the account balance is less than $5000.
Conclusion: For an investor with a low balance RRSP account who does not want to trade frequently, the RBC Direct Investing account is probably the best.
For High Stock Trading Volume Low Balance Accounts Questrade is Best from a Fee View
If the investor wants to make many stock trades, however, a Questrade account makes more sense. By making one trade per quarter, the Questrade account becomes a non-annual fee account. Also, at $4.95 per stock trade, the trading commissions would be lower.
For an ETF Only Low Balance Account a Questrade Account is Best from a Fee View
ETF purchases made through Questrade are free. (It costs the usual commission to sell ETFs.) ETF purchases and sales through Direct Investing accounts with low balances cost $9.95
ETF purchases at Questrade, however, do not count as commissionable trades and do not stop the inactivity fee from applying.
If the investor is only making a single ETF purchase and no sales for the year, then the RBC Direct Investing account still costs less in fees.
However, if the investor wishes to make multiple ETF purchases throughout the year, the Questrade account will cost less. The breakeven point is about 9
 purchases. (Questrade’s $90.17 annual inactivity fee divided by Direct Investing’s $9.95 28.95 ETF purchase fee.)
Why Would RBC Direct Investing Offer Such a Deal on RRSP Self Directed Accounts?
In the short term, Direct Investing will make a bit of money off any cash balance in your RRSP account caused by the direct monthly contributions not getting immediately invested. Direct Investing does not pay interest on cash balances in RRSP accounts.
In the longer term, Direct Investing is trying to bring you in as a new long-term customer. They consider that benefit sufficient to outweigh the loss of a $100 annual fee.
Banks and brokerages change their fees often. Before opening an account, phone the brokerage and confirm that these fees and conditions are still applicable.
Sources of Information
- Questrade http://www.questrade.com/trading/registered_accounts_rrsp.aspx
- RBC http://www.rbcdirectinvesting.com/commissions-fees-schedule.html#fees
- Questrade Has the Lowest Annual Fee RRSP Brokerage Account with No Minimum Balance: Or Does It?
- RRSP Strategies Part 1: How to Best Get your RRSP Money Contributed Before the Tax Deadline
- RRSP Strategies Part 2: Move the Money Where You Want to Keep It
Have you tried setting up an account with RBC Direct Investing? Did it go well? Do you see other ways RBC Direct Investing will gain by offering this option to new customers? Please share your experiences with a comment.