Author Archives: BetCrooks

Goodbye Canada Retirement Savings Plan, Hello ING Direct RRSP

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For me, investing includes emotions not just facts. I like Canada Savings Bonds. My parents invested each of our “Baby Bonuses” into CSBs and those same bonds later helped pay for my engineering degree. When I started working, I enrolled in the Canada Savings Bond payroll deduction plan and each year I’d get some new bonds with the money that was taken from my cheques before I could see it, want it or spend it. Later, when we were cash-short to make RRSP contributions, my husband and I would transfer some of our CSBs directly by phone to the Canada Retirement Savings Plan. The tax receipt would arrive a few days later in the mail. So it’s with sadness that I am finally saying goodbye to the Canada Retirement Savings Plan and to the last of my Canada Savings Bonds; But I’m also saying hello to an old friend, our ING Direct, now called Tangerine.ca, RRSP account, which is offering me a bonus right now.

Why Am I Closing Our Last Canada Retirement Savings Plan Account?

I moved the bulk of our RRSP money invested in our Canada Retirement Savings Plans out a few years ago. I moved it to our brokerage accounts at BMO InvestorLine. Most of it was re-invested there in GICs. Why did I move the money from an investment in Canada Savings Bonds to an investment in GICs? Because after all those years of good returns, the Harper government had finally dropped the rates on CSBs below the rate trust companies offered on GICs.

I think that’s a shame. I think the Canada Savings Bond programs were two of the best, most accessible programs for small investors out there. Through automatic payroll deduction, free to employees and almost free to employers, regular people could be encouraged to save. The savings felt safe. Many people, especially those who moved here from other countries, don’t particularly trust banks. Investing in the government feels safer. The rates used to float a percent or two higher than that of GICs as additional incentive.

And the bonds could be transferred quickly and easily, without redemption, into a no-fee RRSP account called the Canada Retirement Savings Plan administered by the government. The tax receipts came quickly and accurately. Statements came (for free!) in the mail quarterly or semi-annually. Withdrawals (aside from withholding taxes) came with no fees. There were no fees to transfer the funds to another RRSP either. No sales people called, ever. It was a simple, pain free, secure way to save for retirement.

The Federal Government’s War of Attrition on Canada Savings Bonds

Unfortunately, a few elections ago, the government decided it wanted out of the Canada Savings Bond business. Given the tremendous goodwill out there for the bonds, they didn’t want to simply cancel the programs. Instead they began a war of attrition.

First, the interest rates payable on Canada Savings Bonds were slashed. Next, the CSB payroll deduction plan was significantly modified so that it became a virtual electronic savings account. While this had a few advantages it was largely intimidating to people who preferred getting a simple slip of paper telling them what they owned. Next regular CSBs, which could be cashed any time, were cancelled altogether. Only Premium bonds which could only be cashed on the annual anniversary date were offered. The Canada Retirement Savings Plan was closed to new applicants. Then they made another change such that if your balance in the CRSP drops to 0 they will close your account and you can’t re-open it.

That last one is why I left a small balance in each of our accounts. I was quietly hoping for a change in government and a change in policy. It’s not happening though. And I realized if we do get a re-think, they will probably re-open the program to all Canadians. So it’s time to close our accounts for now.

And the best time seems to be exactly now. The interest rate on our remaining premium bonds has dropped below that for a GIC. And ING Direct Tangerine is offering me a bonus to transfer in the money.

Tangerine Offers a RRSP Transfer In Bonus

We already have daily interest savings account RRSPs with Tangerine. They have been very handy for making last minute contributions, printing a tax receipt immediately, and then deciding whether to invest the money in a GIC at Tangerine or transfer it for free elsewhere later when we have time to think.

Their offer says:
“Simply transfer RSP savings you may have to your RSP ISA between August 26 and September 30, 2013. You’ll get a Cash Bonus equal to 1% of the amount you transfer in, up to $100.”

It’s a sign that it’s time for me to make the transfer.

UPDATE: Please be aware that as of January 2015, Tangerine has started charging a fee if you transfer your RRSP or TFSA from Tangerine to another bank, credit union, brokerage or financial institution.

I would no longer transfer money from a RRSP into Tangerine unless I planned to keep it there for the long term.

Goodbye CRSP and Thanks for all the Fish

Today I’ll fill out the T2033 online at ING Direct Tangerine, print a copy and mail it in. My next statement from the Canada Retirement Savings Plan will show a balance of 0. And I will feel sad.

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Did you use the Canada Retirement Savings Plan? Was it simple and useful for you? Please share your reminiscences with a comment.

Where Should I Start a Self-Directed RESP?

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As I mentioned before, we didn’t start RESPs for our children until the eldest was 10 years old.  Up till then we were busy paying off our mortgage and dealing with some other financial necessities. That meant, though, that we didn’t want to invest heavily in stocks or anything else that might plummet in value and take a decade to recover. After all, that eldest child will need the money in the year she turns 18 if she goes on to “higher” education. So it wasn’t till very recently that I decided we might want to start a self-directed brokerage account Registered Education Savings Plan, RESP, for them.

Why Would a Self-Directed RESP Be Worthwhile?

Again, as I mentioned before, you don’t have to buy stocks in a self-directed brokerage investment account. You can also buy good-old-fashioned GICs. The kicker is that the smallest GIC you can buy is usually $5000.

On the other hand, once you have one $5000 GIC, each year you could add any amount to it, from $1 on up. That’s because when a GIC matures in a brokerage account it is paid out in cash. You can then use that cash, plus your newly contributed cash, to buy your next GIC.

Why would it be better to buy the GICs in a brokerage account? Because the interest rates available through the brokerage account are usually better than those you can get dealing directly with a bank or financial institution. (There are some exceptions. It appears that you might get a better GIC rate dealing directly with, say, ICICI but many of these institutions do not offer RESPs.)

Of course, if you start contributing to a RESP when your child is a toddler, you have a much longer time to recover from a market downturn and you might want to buy some index funds (ETFs) with a very low expense ratio (MER) which try to capture the return of an entire stock exchange like the TSX or NYSE. You could buy units in these ETFs within the self-directed RESP brokerage account as well.

Or you could buy shares. That has a much higher risk of losing money, though.

OK, If I’m Going to Open a Self-Directed Brokerage RESP, Where Should I Go?

There are two sets of brokerages to consider:

  1. The “Big 5” Canadian banks all have brokerages. BMO has InvestorLine. CIBC has Investor’s Edge. RBC has Direct Investing. ScotiaBank has iTrade. TD has (get this) Direct Investing. They used to be TD Waterhouse, but they recently changed their name. It may cause a little confusion!
  2. Then there are quite a few independent or smaller brokerages. These include ones like QTrade, Questrade, Disnat, Interactive Brokers, HSBC InvestDirect, National Bank Discount Brokerage, Credential Direct, Virtual Brokers and I’m sure there are other ones whose names elude me at this time.

(I’m not very familiar with the independent or smaller brokerages so most of this article is about the Big 5. However, you can research the others using the same ideas described below.)

Narrowing Down the Choices for a Brokerage for a RESP

Stick With Your Existing Brokerage to Reduce Fees

If you already have a discount brokerage account, chances are good your best choice is to host your RESP brokerage account at the same institution. Usually this will allow you to get the lowest possible commissions on buying and selling ETFs and stocks as you can pool your capital to meet the discount requirements. (If you’re only buying GICs and/or no-load mutual funds, though, this may not matter.)

Check Minimum Investment Requirements and Annual Fees for RESP Brokerage Accounts

Many brokerages require a minimum balance in the RESP account in order to waive an annual or quarterly fee. These balances can change often, so always double check before signing up with a brokerage.

As of September, 2013, here are some of the annual RESP fees and minimum balances required to avoid paying them:

  • BMO InvestorLine:  A minimum balance of $25,000 is required or there is an annual fee of $50.
    Source: http://www.bmoinvestorline.com/home/getting-started/il/accounts/resp
  • CIBC Investor’s Edge: NO minimum balance is required; no annual fee!
    Source: https://www.investorsedge.cibc.com/ie/features/no-fee-resp.html
  • RBC Direct Investing: A minimum balance of $15,000 is required but can include investments in other Direct Investing accounts, or else a fee of $25/quarter ($100/year) is charged for the RESP account.
    Source: http://www.rbcdirectinvesting.com/commissions-fees-schedule.html#fees
  • ScotiaBank iTrade: A minimum balance of $15,000 is required but can include investments in other iTrade accounts, or else a fee of $25/year is charged for the RESP account.
    Source: http://www.scotiabank.com/itrade/en/0,,3694,00.html
  • TD Direct Investing: A minimum balance of $25,000 is required or else there is an annual fee of $50 plus tax.
    Source: http://www.tdwaterhouse.ca/products-services/investing/td-direct-investing/accounts/resp/index.jsp
    http://www.tdwaterhouse.ca/products-services/investing/td-direct-investing/accounts/index.jsp

Consider Investor’s Edge For Low Balance RESP Accounts

If you only have one child and you are just starting your RESP, you may only have a small amount to invest. If it’s $5000 or more, though, you could want to get a brokerage account to get better GIC rates.

One place to check into in this situation is CIBC. As of September, 2013, CIBC’s Investor’s Edge was advertising that there is no annual fee for a RESP brokerage account.

Consider Brokerages with No Fee ETF Purchases

If you plan to buy ETFs within your RESP, you may want to consider brokerages which offer ETF purchases with no fees. Some brokerages, like Questrade, advertise no fees on all ETF purchases. Others like iTrade offer no fees on some ETFs. (Source: http://www.scotiabank.com/itrade/en/0,,4200,00.html ) You’d have to check whether the brokerage you are considering is selling the ETFs you want for no fee. Also be aware that most of these brokerages are actually refunding the fee AFTER you’ve paid it which may or may not suit you.

Not All Brokerages Offer Excellent Paperwork and Customer Service

It’s also a good idea to check public chat areas like RedFlagDeals and the Canadian Money Forum for feedback on any problems investors have been having with their brokerages. Cost is not the only factor to consider when picking a place to invest your hard earned dollars.

Check Whether the Brokerage Can Handle Any Grants Your RESP Contributions May Receive

Generally, most brokerage accounts can handle the Canada Education Savings Grant, CESG, monies.

If you are also eligible to receive other monies, such as the Canada Learning Bond or the Alberta Centennial Education Savings Plan you may not be able to use a brokerage account. Some of them juts can’t (or won’t) handle the paperwork and accounting required for these other sources of money. Be sure to check the details for each brokerage you are considering before signing up.

Which Brokerage Did We Pick?

To be honest, I still haven’t decided! That’s near the top of our financial “to do” list, though.
UPDATE: As of January 2014, we have a self-directed RESP at BMO InvestorLine. Search for posts on how it’s going!

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What do you think? Where should we open our RESP brokerage account? Where did you open yours? Please share your opinions with a comment.

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