Tag Archives: DIrect Investing

How to Choose a Self-Directed TFSA Brokerage Account to Minimize Fees and Costs

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Tax Free Savings Accounts, or TFSAs, first began in 2009 with a maximum annual contribution of $5000 for a Canadian who was 18 years of age or older. With that low an initial contribution level, they didn’t really offer much scope for self-directed investing. In each of 2010, 2011, and 2012, another $5000 in contribution room was added. Starting in 2013 $5500 per year in annual contribution room has been added. So a person who was 18 or older in 2009, and who has been a Canada resident every year from 2009 to the present, can now contribute or have contributed up to $31 000 $25,500 to a TFSA, not including any re-contribution of withdrawn funds. With $31 000 $25,500 plus earnings to manage, it makes sense for some investors to keep their TFSA in a self-directed brokerage account. When choosing a brokerage account, one aspect to consider is the fees and costs for holding and using the account. Here’s a review of which accounts have minimal or no fees and which accounts have high costs and commissions.

Please note there are actually two types of Tax Free Savings Accounts brokerage accounts, and those that can only hold a very limited number of investment choices which I call standard Bank TFSA accounts. For more information on the fees for basic bank TFSAs, please see the article How to Choose a Standard Bank Tax Free Savings Account, TFSA, with Minimal or No Fees.

Fees, Costs and Commissions for Self-Directed TFSA Brokerage Accounts

How to Choose a Self-Directed Tax Free Savings Account, TFSA, Brokerage Account with Minimal or No Fees

Some investors have a non-registered emergency savings account with 3-12 months income worth of cash and liquid assets, a topped up work pension plan, and a topped up RRSP. They often consider the TFSA as another long-term investing tool. These investors usually set up a self-directed TFSA brokerage account. They intend to buy stocks, bonds, ETFs and mutual funds from a wide variety of issuers. The self-directed account gives them the investing flexibility and diversity they demand.

BMO InvestorLine CIBC Investor’s Edge Qtrade Questrade
Set-up Fee  0  0  0  0
Transfer Fee  $135  $135  $125  $125 ($25 for partial)
Closing Fee  $135  $135  $75  0
Annual “Maintenance” Fee  0  0  0  0 if $5000 or if 1 trade per 3 months, or $19.95/3 months
Commissions to Buy Shares, ETFs $9.95 for everyone  if $50,000 assets
$29 if less		  $6.95 if $100,000 assets
$9.95 if $50,000 assets
$28.95 if less		  $9.95 if $50,000
$19 if less		  $4.95-$9.95
RBC Direct Investing Scotia iTrade TD Waterhouse
Direct Investing		 Virtual Brokers
Set-up Fee  0  0  0  0
Transfer Fee  $135  $150  $135 $125 plus tax
  $150 (partial $50)
Closing Fee  $135  0  $135 $125 plus tax  0
Annual “Maintenance” Fee  $25/3 months but 0 if $15,000 or various conditions are met  0 0
Update: July 2016:
$25/3 months but 0 if $15,000 or various conditions are met		  CAD TFSA $0
USD TFSA $50/year
Commissions to Buy Investments  $9.95 for everyone  if $50,000 assets
$28.95 if less		  $9.99 if $50,000 assets
$24.99 if less		  $9.99 for everyone  if $50,000 assets
$29 if less		  $0.99-9.99+6.49 per trade depending on assets

* InvestorLine has a minimum contribution to open any type of account of $5000. This appears to apply to TFSA accounts.

UPDATE: FEBRUARY 2014
In January and February of 2014, RBC Direct Investing, TD Waterhouse Direct Investing and BMO InvestorLine all removed the minimum balance requirement for accounts to qualify for $9.95 online trades. I expect CIBC Investor’s Edge and ScotiaBank iTrade will eventually reduce their requirements also but it hasn’t happened quite yet. Please check their websites for up-to-the-second details.

UPDATE: JULY 2016
CIBC Investor’s Edge offers $6.95 trades to all customers regardless of account size.

NOTES:
Generally you should expect to review your account statements online if you do not wish to pay any additional fees.

By Transfer Fee I mean the cost to transfer the TFSA to another financial institution. Generally transfers within an institution, for example from BMO InvestorLine to BMO, do not incur a fee.

Unfortunately fees and costs may be changed at almost any time. Before actually opening an account, contact the financial institution to confirm all costs. I’d hate to cause you a costly mistake if the brokerage raises its fees just after I issue this report!

Sources for the 2014 February Update

  • BMO InvestorLine: https://www.bmoinvestorline.com/public/pdf/schedule_en.pdf
  • CIBC Investor’s Edge: https://www.investorsedge.cibc.com/ie/benefits/fees-and-commission/fees.html
  • Qtrade: http://www.qtrade.ca/investor/en/aboutus/services/fees.jsp
  • Questrade: http://www.questrade.com/pricing/admin_fees
  • RBC Direct Investing: http://www.rbcdirectinvesting.com/commissions-fees-schedule.html
  • Scotia iTrade: http://www.scotiabank.com/itrade/en/0,,3694,00.html
  • TD Waterhouse Direct Investing: http://www.tdwaterhouse.ca/document/PDF/forms/521778.pdf
  • Virtual Brokers: https://www.virtualbrokers.com/contents.aspx?page_id=12

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RBC Direct Investing Has a No Annual Fee RRSP Brokerage Account with No Minimum Balance!

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UPDATE: This article is historical, from 2013. I no longer invest with RBC Direct Investing.

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 28.95 each.

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 [4] 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.

Buyer Beware!
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

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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.