Tag Archives: fees

RRSP Strategies Part 2 Move the Money Where You Want to Keep It. Choosing a Long Term RRSP Investment Account

Posted on by

If you had to rush to contribute to a RRSP to meet the tax deadline, you may have parked your contribution temporarily at an institution that has no or a low transfer-out fee. Or, you may have decided to set up your RRSP account where you want to keep it before making any contributions. Either way, this article will discuss where you might want to host your RRSP account for the long term.

It’s important to understand that an RRSP is just an empty file folder. Inside the folder you can hold cash, guaranteed investment certificates (GICs), term deposits, mutual funds, exchange traded funds (ETFs), bonds, shares, and other investments.

Some financial institutions will offer you an RRSP folder that can only hold a few types of investments.

  • Many banks, for example, only allow your RRSP to hold cash, GICs, term deposits and mutual funds.
  • Most online self directed brokerage accounts allow you to hold almost everything possible in your RRSP.

Here are some factors to consider when choosing where to set up your RRSP account.

Convenience
Many people set up a RRSP account at the financial institution (bank, credit union etc) closest to where they live or work. Given that you can make a contribution to almost every RRSP by mail, computer or telephone, this does not seem like a great strategy. Unless the RRSP that location offers is the one that meets all of your other needs, I’d suggest you be prepared to be (slightly) inconvenienced in order to save money on fees or to earn more money within your RRSP.

Contributions
Others pick a RRSP account offered by the financial institution with whom they do their regular banking like paying bills and depositing pay cheques. This does make it very convenient to make new contributions to your RRSP. However, most financial institutions can now accept new RRSP contributions electronically so this convenience should not be a huge factor in your decision.

For example, at the time this was written [in 2013], RBC Direct Investing was offering a self directed RRSP brokerage account with no annual fee and no annual minimum balance if you set up contributions of at least $100/month to your RRSP. These contributions do NOT have to come from an RBC bank account. They can be set up using the bill payment option available from most banks. (For further information, please skim RBC Direct Investing has a No Annual Fee RRSP Brokerage Account with No Minimum Balance!)

Investment Choices
There are basically two types of RRSPs you have to choose between:

  • Bank RRSPs which limit you to cash, term deposits, GICs, mutual funds and possibly some ETFs. These investments are usually all issued by that bank. For example, you can’t purchase a TD e-series fund from within your BMO RRSP.
  • Brokerage RRSPs which allow you to invest in cash, term deposits, GICs, mutual funds, ETFs and shares issued by a wide variety of banks and financial institutions and traded on various stock exchanges.

Many people start with a Bank RRSP. When they have accumulated a large amount of money (often $25,000-$50,000) they then move it to a Brokerage RRSP.

Costs, Fees and Commissions
The costs, fees and commissions charged to host a RRSP account are a very important consideration when setting up a RRSP. Most of these costs must be paid from within the RRSP, reducing your retirement savings. (For example, if you have to pay $200 in fees per year from within your RRSP you have lost the ability of that money to earn income from now till the year you retire. And yet you cannot contribute any more money to your RRSP to make up for it if you have already maximized your contributions to your RRSP.)

Typical costs include

  • A quarterly fee for a RRSP account whose balance is less than a minimum amount of dollars. Most banks do not have any minimum balance requirement and charge no fee. Most brokerages do have a minimum balance requirement or they do charge a fee. (Please see RBC Direct Investing has a No Annual Fee RRSP Brokerage Account with No Minimum Balance! and Questrade Has the Lowest Annual Fee RRSP Brokerage Account With No Minimum Balance: Or Does It? for details.)
  • A cost to purchase or sell shares and ETFs. These types of investments can be purchased within RRSPs provided by brokerages. For most bank brokerages, the cost to purchase or sell depends on the total value of your RRSP account. Generally, the more money you have in your account, the lower the trading cost. For example, if you have $50,000 or more, at BMO InvestorLine, CIBC Investor’s Edge, RBC Direct Investing, ScotiaBank iTrade, and TD Waterhouse [now TD Direct Investing in 2014] you’ll pay $9.95-$9.99 per trade.
    (A trade is one completed request to purchase or sell one type of stock or ETF on one day.)
    The trading costs can be lower at independent brokerages. For example, Questrade charges $4.95 for most trades regardless of the account balance.
    UPDATE FEBRUARY 2014: Both RBC Direct Investing and TD Direct Investing have suddenly dropped their trading commission to $9.95 per trade (or less) for all investors regardless of their account balance.
  • It looks like you are not paying a fee when buying a bond. In reality, the fee is already included in the purchase price. The fee is set by the financial institution selling the bond. It is very difficult to easily determine whether one brokerage is offering a higher or lower fee to purchase a bond than another brokerage. I ignored bonds when choosing where to invest. Bond funds are a type of mutual fund or ETF and the usual fees and constraints for purchasing other types of mutual funds and ETFs apply.

Less common costs include

An inactivity fee for a RRSP where the investments are not being changed. (At the time of writing I am only aware of Questrade charging such a fee. It only applies to accounts with balances of fewer than $5000 held by persons aged 26 and older.)

Free Transactions

Most discount brokerages and financial institutions allow you to purchase GICs and term deposits for no fee. Banks and credit unions, however, usually only let you buy these products when they are issued by themselves which may reduce the interest rate you can earn.

For example, if I buy a GIC from BMO InvestorLine I can buy one issued by over a dozen companies. If I buy one from BMO, I can only buy a BMO GIC. Today, I could get a one-year term for 1.7% from Home Trust via InvestorLine. If I buy a GIC today at BMO, the best 1-year rate I can get is about 1.3%.

Most financial institutions only allow you to purchase mutual funds they issue. Those funds may not offer what you want, or they may have high MERs.

A MER is a fee you pay for owning the fund BEFORE the fund pays you any profits. So if the fund makes 5% profit for a year, and the MER is 2.5%, you only make 2.5% profit for the year. If the fund makes 2% profit for a year, and the MER is 2.5%, you actually lose 0.5% of your fund’s value that year! NOTE most sales brochures quote the performance of the fund AFTER the MER is subtracted. So if it says it earned 7% last year, then it really earned (7+MER)%, perhaps 9.5%, last year.

Most discount brokerages allow you to purchase a wide variety of mutual funds issued by many institutions for no fee. They often set required minimum purchases, however. For example, at BMO InvestorLine you are required to buy at least $1000 of a non-BMO mutual fund for a first purchase, and at least $500 at a time for each additional purchase of that same fund.

Transferring to a Self Directed RRSP Brokerage Account in the Future

If you don’t start with a self-directed brokerage account, you may want to position yourself for a future transfer to one. There is usually no fee to transfer a RRSP account from a bank to its corresponding brokerage. For example, there is no fee to transfer a RRSP account from BMO to InvestorLine or from CIBC to Investor’s Edge.

If you think you want to start with a bank RRSP and then transfer later to a brokerage, you may want to choose the bank that matches the brokerage you ultimately want.

Some brokerages, by the way, will pay the transfer fee for you if you are bringing in a large enough account. Usually they want you to be bringing $50,000 or more before they will pay your transfer fee.

Transferring Your Parked RRSP Contribution to your Permanent RRSP

If you parked your RRSP contribution in a daily interest savings account at ING Direct, or elsewhere, it is fairly easy to transfer it to your permanent RRSP.

Ask the provider of your permanent RRSP to supply you with the T2033 form to transfer the money. On this transfer form you will

  • provide the name and address of the place where the money is now (e.g. the address for ING Direct).
  • provide your account number and information about the current balance of the account
  • fill in the name and address and account number of your new RRSP

You often have to attach a photocopy of a recent statement from your existing RRSP.

The form and photocopy are mailed to the financial institution that is holding your current account. For example, either you or your bank/brokerage would mail the form to ING Direct if they have your cash RRSP. After 2-8 weeks, they will electronically transfer the money to your new permanent RRSP.

Can I Transfer my RRSP GICs to my RRSP Brokerage Account?

You usually cannot transfer GICs from one RRSP to another. Also, you cannot cash GICs until they mature. If your investments are in GICs, you will have to set instructions to have the GICs mature to a RRSP daily interest savings account. Once they are in the cash account, you can easily transfer them.

Can I Transfer RRSP Mutual Funds to my RRSP Brokerage Account?

It depends. Specifically it depends on whether the broker sells the type of mutual fund you want to transfer. For example, I was able to transfer some BMO RRSP mutual funds to my InvestorLine account. I could also transfer some CIBC RRSP mutual funds to my Investor’s Edge account. However, neither BMO nor CIBC offers ING Streetwise funds for sale. So it would not be possible to transfer Streetwise funds to their brokerages.

If you want to transfer RRSP mutual funds, you should call your brokerage to discuss whether it is possible. If you have not yet picked a brokerage, you might want to call and ask before setting up an account. Perhaps one brokerage would be better than another for this purpose.

My Recommended Strategy for Setting Up a Long Term RRSP Account

Strategy for RRSP Accounts of Fewer than $15,000 for Several Years

If you expect to have less than $15,000 in your RRSP for several years, I would recommend setting up your RRSP account with a bank or financial institution. (Please see RRSP Strategies Part 3: Keep It Safe to Start.)

I would choose the bank that offers the best mutual funds and/or ETFs for my current needs.

Most of them could meet those criteria, so next I would choose the bank that is affiliated with the self directed brokerage I am most likely to want to use in the future. This will save an account transfer fee in the future.

Bank Brokerage
BMO InvestorLine
CIBC Investor’s Edge
RBC Direct Investing
Scotia iTrade
TD Waterhouse [now, in 2014 “Direct Investing”]

Generally if you have a balance of $25,000 or more you can get an independent brokerage like Questrade to pay your account transfer fees. So if you choose a potential bank brokerage today and change your mind to an independent brokerage when the time actually comes to make the shift it should be fine.

One choice you should thoroughly research is the TD BASIC SDRSP (which means self directed retirement savings plan). It is sort-of a step between a bank RRSP and a brokerage RRSP account. It allows you to invest in very low MER e-series TD funds. (For details, you might want to read an article by the Canadian Couch Potato about this plan.

Another choice to take a close look at if you have at least $10,000 is the RBC Direct Investing self directed RRSP. If you are willing to commit to pre-authorized contributions every month it is fee-free and gives a wide range of investment choices. (You generally need a large balance to buy GICs within a self directed plan. InvestorLine, for example, requires you to buy GICs with a minimum size of $5000 each.)

Strategy for RRSP Accounts of More than $25,000

If you already have $25,000 in your RRSP I would start researching self directed brokerage RRSP accounts and pick one and set it up immediately. It will increase your investment flexibility without any significant drawbacks. You can always keep all of your money in GICs even within a brokerage account.

Related Reading

Join In
What made you choose where you would keep your RRSP? Was it the physical location of the institution? Where you keep your chequing account? Fees? Please share your experiences with a comment.

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

Posted on by

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

Related Reading

Join In
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.