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
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