Tag Archives: CIBC

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

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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

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ATL5000 High Interest Savings Account Fund at CIBC Investor’s Edge Online Discount Brokerage

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After transferring some funds into our new CIBC Investor’s Edge account, I looked into whether we could park our extra cash in a high interest savings account fund while waiting for an opportunity to invest it later. CIBC Investor’s Edge does offer ATL5000, the Renaissance daily high interest savings account fund.

What is the Minimum I Have to Invest in an Investor’s Edge High Interest Savings Account Fund?

The minimum investment is $1000. I believe if you try to make a withdrawal that will reduce your investment below $1000 it will not go through. I’m not sure, though, so I hope to test it later.

This means if I receive a dividend payment of, say, $176, it takes two steps and about 4 days to deposit it into the savings account.

First, I would have to sell $1000 of my ATL5000 (or if that would leave me with less than the minimum of $1000, I would have to sell my entire ATL5000 holding.) Like most mutual funds, that should settle in T+1 (trade day plus one business day) provided I put in the sell order before the daily deadline (usually 3 p.m.)

Next, after it had settled, I would have to place a buy order for the $1176. That would take another T+1 business days to settle. It is also possible that mutual funds may settle more slowly than expected. They do not have to follow the same hard rules as equity trades.

How Long Do I Have to Leave my Money in the CIBC ATL5000 HISA? Is there an Early Redemption Fee?

Many high interest account funds offered by online brokerages charge an early redemption fee if they are cashed before the first 90 days of investment. The ATL5000 fund offered through Investor’s Edge does not have a minimum holding period. It can be sold after only a few days with no penalty.

Be Careful Not to Lose Your Interest by Cashing a HISA Too Soon

High interest funds like ATL5000 mimic a daily interest savings account. That means that although interest is calculated daily, it is paid monthly. If you fully redeem the fund before the monthly interest payment is deposited in your account, you could will forfeit that interest.

So using a HISA fund to try to earn interest on your cash for a term shorter than 30 days requires a bit of planning. If you can leave the $1000 minimum in the account until the previous month’s interest is paid, you may want to do that.

Frankly, at the current posted rate of 1.25% ANNUAL interest it may not be very important. If you are only parking, say, $10,000 for 45 days, you would receive the first interest payment, and forfeit the second. Pretending that all months have 30 days, that would mean forfeiting about $5 in interest. You still would have made the approximately $10 interest for the first 30 days of investing. (Don’t scoff at $10 interest: it pays for your next trade.)

If ATL5000 is a No Load Fund Why Does It Say Front Load under the Fund Type?

When in the purchase screen for the ATL5000 fund on CIBC Investor’s Edge, you can click for a recent price quote. When you do so, you may notice it says ATL5000 has a Front End load.

Does that mean you have to pay a fee to buy ATL5000?

Not directly, no. The front end fee is built into the interest rate  you receive for your money. You don’t hand over a tangible, say, $10, but you do only get the posted rate of 1.25% which was calculated after paying the fee to the brokerage.
UPDATE: On March 18, 2017 ATL5000 is paying 0.75%.

If you look at the Product Features for ATL5000 you will see the brokerage receives a front end fee of 0.25 %.

If you look even more closely, you’ll see there is an ATL5001 series F fund available. http://www.renaissanceinvestments.ca/en/news/archive/2007/default.asp That fund is sold only through fee-for-service brokerages. It does not have a front end load. It pays 1.50% interest. However, to be eligible to buy this type of fund you must be dealing with a full-fee brokerage. CIBC Investor’s Edge is a discount brokerage.

There is no fee to buy or sell this fund through Investor’s Edge, except for this hidden fee.

Why Not Just Connect to a True Online High Interest Savings Account?

An observant reader pointed out that if you have an investment account at your self-directed brokerage, you can get a substantially better interest rate by connecting it to a true online high interest savings account at a financial institution like Ally. [UPDATE: Ally is gone! RBC closed it.] The one notable drawback is that there may be a significantly longer turnaround time than T+1 (trading day plus one business day) to get your money transferred back into your account ready to use. The brokerages are not exactly eager to make this easy for you, and may put a hold on transfers in from non-affiliate financial institutions.

This article, however, is aimed at investors with RRSP, RESP or TFSA accounts at self-directed brokerages. For these types of accounts, there may be a very high fee for transferring funds out to another institution. That’s where these HISA funds become an important option.

Comparison of High Interest Savings Accounts at CIBC Investor’s Edge to at BMO InvestorLine

In this comparison, CIBC Investor’s Edge is the clear winner. At BMO, the minimum investment in a HISA is $25,000. [UPDATE: The minimum is now $5000 at InvestorLine in February 2014.] At CIBC it’s $1000. Both have no fees to pay for purchase or sale. Both pay the same interest rate, currently 1.25%. UPDATE: On March 18, 2017 ATL5000 and AAT770 are both paying 0.75%.

Both even sell ATL5000. [UPDATE: In February 2014 only Investor’s Edge readily sells ATL5000; In most cases, InvestorLine will only sell AAT770.] The more reasonable minimum at CIBC makes its offering better.

UPDATE: As of April 11, 2013, BMO InvestorLine now sells the BMO HISAs AAT770 and AAT780 which have a minimum required balance of $5,000. This is not as good as the $1,000 requirement at CIBC, but it is much better than the former limit of $25,000.

Further Information

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