Category Archives: Money Tips

Questrade Has the Lowest Annual Fee RRSP Brokerage Account with No Minimum Balance: Or Does It?

Posted on by

At first glance, it appears that Questrade is the best choice for an RRSP brokerage account for someone with a very small amount of money to invest who insists on having a self-directed account within which they can purchase stocks and ETFs. Is it?

The Minimum Balance for a No Annual Fee RRSP Brokerage Account at the Big Banks

Four of the big bank brokerages (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. Note: if the value of your stocks drops you might end up below that amount and you could incur an unexpected fee. Protect yourself with a bit of extra investment if you can.

TD Waterhouse also offers a simplified RSP where you cannot hold stocks but you can hold a large variety of other investments for $25/year.

Sometimes these bank brokerage annual fees are negotiable. If you have other business with the bank such as a mortgage or a high balance bank account, you may be able to ask them to waive the fees on your RRSP account. This rebate depends on the discretion of the bank and brokerage, though, so I will ignore it for the purpose of this evaluation.

The Minimum Balance for a No Annual Fee RRSP Brokerage Account at the Independents

Some other independent online brokerages also require a fairly large minimum balance or you will have to pay an annual fee. Credential Direct, Disnat, Qtrade and Virtual Brokers require $15,000 for a RRSP account. That’s $10,000 less than all but 1 of the big bank brokerages. [This minimum was still correct in February 2014.]

The Minimum Balance for a No Annual Fee RRSP Brokerage Account at Questrade

Questrade, however, at the time of writing in February 2013, and as of this update in February 2014, does not charge a fee to open an RRSP or require a minimum balance in the RRSP. Sounds great, right?

The Questrade Inactivity Fee Pseudo-Minimum-Balance Fee

Beware of the fine print! Questrade actually does have an annual fee unless you have a minimum balance of $5000 or you are actively trading or you are 25 years of age or under.
If you are 25 years of age or under they have no minimum balance, no fee and no inactivity fee.

If you have a minimum balance of $5000 they have no inactivity fee.

If you are deemed inactive and have less than $5000 in your account, they charge an inactivity fee. They define “active” as one commissionable trade per quarter. The inactivity fee is $19.95 per quarter plus taxes. That’s $90.17 per year depending how you round it, at 13% HST.

Still, that’s no big deal, right? Or is it?

First, remember most big bank brokerages only charge $100 a year or less for a small account.

Second, it depends on your investment plans. Many investors only buy stocks occasionally and hold them until some investing goal is reached. For this type of investor it may not be natural to make a trade each quarter. Instead, they may make 5 trades in a month when the stock market is down (buying of course!) and then nothing for a year as the stock market is climbing.

To make a reasonable comparison to the other brokerages it would probably be more fair to say that Questrade has a minimum required balance of $5000. Still, this is the lowest minimum balance I have found so far, bar one.

Calculating the Break Even Point for Investing in a GIC or in a Dividend Paying Blue Chip Stock

Here’s another way of analyzing the situation and why I consider the minimum balance to be $3000-5000 for Questrade.

In each of the following scenarios, I compare the costs of investing the available RRSP monies in a GIC or in shares of a single company. If it bothers you to see a single stock, you could substitute it mentally for a single ETF that pays a dividend of 5.101% annually. The example is meant to keep trading costs to a minimum and to keep the yield to a reasonably achievable value. No capital gains are included in the review, although presumably you are investing in the stock hoping to get capital gains. I didn’t factor in the potential capital gain because I also didn’t factor in a potential capital loss. This scenario best exemplifies a buy-and-hold situation, rather than an aggressive trading situation.

Scenario 1:
You have $1000 to Invest.
You reserve $67.62 to pay for three inactive quarters the first year.
You reserve $4.95 to pay for the purchase trade.
From the $927.43 balance, you buy 20 shares of BCE at $44.50 with a yield of 5.101%.
You are left with $37.43 in your account.
You earn $45.40 in dividends on the 20 shares (assuming you bought early enough to get all 4 quarterly dividends).
At the end of the year you have $82.83 left in your account in cash.
Your second year inactivity fees will be $90.17. Your second year dividends will be $45.50.
Within three years you will end up having to sell some shares to pay the inactivity fees.

Conclusion: Investing $1000 or less will probably cost you money.

Scenario 2:
You have $2000 to invest.
You reserve $67.62 to pay for three inactive quarters the first year.
You reserve $4.95 to pay for the purchase trade.
From the $1927.43 balance, you buy 43 shares of BCE at $44.50 with a yield of 5.101%.
You are left with $13.93 in your account.
You earn $97.61 in dividends on the shares (assuming you bought early enough to get all 4 quarterly dividends).
At the end of the year you have $111.54 left in your account in cash.
Your second year inactivity fees will be $90.17. Your second year dividends will be $97.61.
You will make a slight profit each year of $7.44 based on (dividends-inactivity fee).

However!
You could invest the $2000 in a 1.45%/year GIC at DUCA and earn $29/year.

Conclusion: Investing $2000 or less is not a great way to make money and may make less money than leaving the investment in a GIC. (Yes, the stock could make a capital gain. It could also make a capital loss.)

Scenario 3:
You have $3000 to invest.
You reserve $67.62 to pay for three inactive quarters the first year.
You reserve $4.95 to pay for the purchase trade.
From the $2927.43 balance, you buy 65 shares of BCE at $44.50 with a yield of 5.101%.
You are left with $34.93 in your account.
You earn $147.55 in dividends on the shares (assuming you bought early enough to get all 4 quarterly dividends).
At the end of the year you have $182.48 left in your account in cash.
Your second year inactivity fees will be $90.17. Your second year dividends will be $147.55.
You will make a profit each year of $57.38 based on (dividends-inactivity fee).
This is almost twice what you could earn on a 1.45%/year GIC at DUCA.

Conclusion: Investing $3000 or more is worth it providing the risk of a capital loss is small enough.

Avoiding the Inactivity Fee at Questrade by Playing the Game

The inactivity fee for Questrade accounts with balances of less than $5000 is $19.95 plus taxes a quarter. A single trade at Questrade costs $4.95. So depending on how a stock is doing (capital gains vs capital loss) it might be cheaper to sell 1 share and buy back 1 share for a fee of $9.90 rather than pay the $19.95 inactivity fee. This seems like a ludicrous game, but it is one way to save money. You could save a tiny bit more by selling the 1 share in 1 quarter and buying it back in another quarter, to offset 2 x $19/95 by paying 2 x 4.95.

RBC Direct Investing’s Better Deal: The No Minimum Balance, No Inactivity Fee RRSP Brokerage Account

RBC Direct Investing actually has a better plan than Questrade for the type of buy-and-hold investor described in my above scenarios. They do not require a minimum balance to open an RRSP account. And they do not charge an annual fee or an inactivity fee provided you are on an automatic contribution plan to the account. For more details please see: RBC Direct Investing Has a No Annual Fee RRSP Brokerage Account with No Minimum Balance !

Sources of Information

  • Credential Direct RRSP account fee 2014 Feb: http://www.credentialdirect.com/why-credential-direct/top-reasons.aspx
  • Disnat RRSP account fee 2014 Feb: https://www.disnat.com/en/forms/D220.pdf
  • RBC http://www.rbcdirectinvesting.com/commissions-fees-schedule.html#fees
  • Questrade http://www.questrade.com/trading/registered_accounts_rrsp.aspx
  • Qtrade RRSP account fee 2014 Feb: https://www.qtrade.ca/investor/en/aboutus/services/fees.jsp#fees
  • Virtual Brokers RRSP account fee 2014 Feb: https://www.virtualbrokers.com/contents.aspx?page_id=12

Related Reading

Join In
Have you found the best bargain for annual fees at a discount brokerage? Please share your experiences, good or bad!, with a comment.

RRSP Strategies Part 1: How To Best Get your RRSP Money Contributed Before the Tax Deadline

Posted on by

My first advice is completely maximize your TFSA before you contribute to your RRSP. If you have maxed out your TFSA contributions you may want to open your first RRSP account. Perhaps you’ve decided to open it before March 1 so that you can claim the contribution on your previous year’s taxes by April 30. What should you do to open your RRSP and make your contribution in the best possible way on such short notice?

Opening an RRSP to Meet the March 1 Deadline with only Hours to Go

Let’s look at a common situation. Say it’s February 25 and you’ve decided you want to open an RRSP and make a contribution in time to claim it on this spring’s tax return. You have not read any books about RRSPs. You have not read any websites about investing (although obviously you are starting to!). You don’t have a clue about what investments to hold in your RRSP or where to buy them. And time is running out.

Don’t Fall into the Bank RRSP GIC and Mutual Fund Trap

It’s one thing to go to your bank and deliberately open an RRSP and buy a GIC or units in a mutual fund. It’s another thing to accidentally do it. If you are choosing this route, that’s fine. But if you’re thinking of rushing to the bank just because you can’t think of anything else to do, slow down.

Banks Charge Large Fees to Transfer RRSPs to Other Banks and Brokerages

Most banks charge a fee to transfer assets from an RRSP to another financial institution. The fee can be quite large:

  • CIBC is going to charge me $100 to transfer my RRSP assets to my RRSP at another company. [Checked 2014 02 https://www.cibc.com/ca/retirement/rrsp/rrsp-daily-int-svgs-acct.html]
  • BMO would charge $50. [Checked 2014 02 http://www.bmo.com/home/popups/personal/investments/rsp-faqs]
  • ScotiaBank charges $150. [Checked 2014 02 http://www.scotiabank.com/itrade/en/0,,3694,00.html]
  • TD charges between $50-135 depending on the type of investments you have in your RRSP and how long you’ve held them. [Checked 2014 02 http://www.td.com/to-our-customers/tdhelps/#psce|cid=871|lid=1|tid=001|vid=b0127f826]
  • RBC Direct Investing charges $135 to transfer out an RRSP. I couldn’t find the fee for a regular RBC RRSP transfer out.
  • PC Financial charges a $50 fee to transfer an RRSP. [Checked 2014 02 http://www.banking.pcfinancial.ca/mkt/investments/interestplusRRSP-en.html?region=ON&language=en&signinop=OB and click on the Fee link in the Legal section.
  • Canadian Tire Financial Services, as of January 2013, does not offer RRSPs.
  • Ally, as of January 2013, does not offer RRSPs.

These fees can hurt if you change your mind later about where you want to hold your RRSP.

Learn from My Mistake! Keep your RRSP Assets Together or Keep Them Safe from Transfer Fees

One year at about 4 p.m. on February 28, I realized I had enough cash to make another contribution to my RRSP. (They didn’t have TFSAs back then when the dinosaurs roamed.) It was a long way to my own bank where the bulk of my RRSP was filling up the safe. So I decided to go to my husband’s bank which was a mere 5-minute walk from our home. After all, he had his RRSP there so why not? I bought a GIC because it was the simplest fastest totally secure investment I could get there.

Fast forward about 15 years. I still have one, count them 1!, RRSP GIC at that bank. I never made any other contributions to my RRSP through that institution. And as I started sorting out our financial tangles, I discovered I was getting a lousy rate on that GIC. (And that’s even though I was smart enough to phone each renewal and get the extra 0.5% you get for whining. See Investing in GICs at the Banks an Exercise in Anger Management to Optimize Earnings.) I could get a considerably higher rate if I invested in a CDIC-insured GIC from a trust company purchased through BMO InvestorLine or CIBC Investor’s Edge.

So now I will have to pay $100 to transfer that GIC to one of our self-directed accounts. Since it’s a very small face value, it will take almost a year of profit to pay that fee. Ouch!

You may be asking “Why don’t you just cash out the RRSP and pay the taxes then make a new contribution to your RRSP elsewhere?” In my case, I’ve already maxed out my RRSP. So if I withdraw the funds, they are permanently withdrawn. Any investment income I make on that money for the next twenty-five years would be taxable income. It could make a lot of income in twenty-five years, so I’d rather take the penalty for one year and keep it sheltered.

Where Should You Invest Your RRSP Money if you are in a Hurry and Time is Running Out?

If you must make a contribution quickly to get your tax receipt on time and you don’t have a plan, at least invest the money somewhere where there is no fee to transfer it elsewhere later.

Consider Contributing to an ING Direct RRSP Cash Account for the Short Term

At the time this was written in 2013, and still in February 2014, ING Direct does not charge a fee to transfer out RRSP assets.

Please confirm this is still the case before making any investment in a RRSP product at ING Direct. ScotiaBank bought out ING Direct from its parent company. They may make changes including adding fees at any time.

Personally, I would recommend starting a cash savings account RRSP at ING Direct. You can set up the account over the telephone or online then mail in your cheque and your forms. They will issue the tax receipt after your cheque clears and your forms are approved.

Then, after some calm reflection and planning you can choose where you really want to have your RRSP and what you want to invest in. When your decision is finalized, you can transfer this contribution into your long-term planned RRSP.

Yes, you might waste a bit of time and a bit of money. Transferring an RRSP requires filling out a T2033 form. Your new financial institution sends it to your old one. They then sit on it for 2-6 weeks, but eventually get moving and send your funds to your new RRSP. Since you have your RRSP money sitting in a cash savings account while you wait for the transfer, you will not earn a lot of interest on it. However, you will also not lost $50-135 in transfer fees when you shift it!

Option 2: If ING Doesn’t Work for You at Least Go Lowest Fees

If you decide you prefer to go with one of the other financial institutions instead of ING Direct, at least try to pick one for the right reason. Two considerations include:

  • low transfer fee
  • best self-directed brokerage service

The low fee is self-explanatory. Check convenient credit unions as well as banks.

The other option is to set up your RRSP at a financial institution that has an appealing self directed brokerage arm. For example, BMO has BMO InvestorLine, CIBC has CIBC Investor’s Edge, RBC has RBC Direct Investing. Transferring a RRSP between a bank and its brokerage is usually free. So if you think you may switch to a self directed account at a later date, you may want to make your initial investments at their related bank.

For more information on InvestorLine, and Investor’s Edge, you can check articles on this site. Over time, I will be adding articles about other brokerages too, including some of the super-discount brokerages like Questrade. UPDATE: I also have articles about RBC Direct Investing.

What to Do After You Park your Cash in a RRSP at ING Direct

Once you’ve made your contribution and received your tax receipt, please keep going. Don’t just leave your RRSP money parked in a savings account. Keep reading the next articles on this RRSP Strategy topic. Read books and websites on investing. Then, armed with a plan that suits your goals, transfer the money and implement your strategy. By taking your time and moving forward in small planned steps you can earn a huge investment portfolio.

Fee Information
Some fee information at the time of writing:

  • BMO is at http://www.bmo.com/home/personal/banking/everyday/fees-agreements/add-services-fees
  • ScotiaBank is at: http://www.scotiabank.com/ca/en/files/11/09/SMcL_Administration_and_Service_Fees.pdf#xml=http://www.scotiabank.com/cgi-bin/search/texis.cgi/webinator/search_ca_en/pdfhi.txt?query=rrsp+fees&pr=db_can_en&prox=page&rorder=500&rprox=500&rdfreq=500&rwfreq=500&rlead=500&rdepth=0&sufs=0&order=r&cq=&id=50ca513830
  • TD is at: http://www.td.com/to-our-customers/tdhelps/#psce|cid=871|lid=1|tid=001|vid=b0c1bf6f6

Further Reading

Join In
Have you found a better place to park a hurried RRSP contribution that lets you move it easily with no fees later? Did you, like me, fall into the bank trap and live to regret it? Please share your experiences with a comment.