When Can I Buy a GIC or Mutual Fund After I Sell a Stock in my BMO InvestorLine Self-Directed Account?

In 2023, when you sell a stock in a self-directed brokerage account, such as a BMO InvestorLine account, the actual settlement date is 2 full trading days later, which is abbreviated as T+2 for transaction date plus 2 business days. So, for example, if I sold a stock on a Thursday, and Friday and Monday are normal trading days, the settlement will take place on Monday. So when can you buy a GIC or a mutual fund after you sell a stock in your InvestorLine account?

Note: When this was written in 2012 settlement occurred 3 trading days after the purchase or sale order was filled, which was called T+3. And now, in 2023, the USA regulators are already at work trying to shorten the settlement date to T + 1, the date of the transaction when the order was filled, plus one business trading day, starting in the fall of 2024. Please confirm settlement dates with your brokerage!

Written: 2012
Reviewed: 2023
Revised: 2023

What is the Settlement Date?

Settlement is when my broker hands over the share certificates (admittedly electronically nowadays) and the other broker hands over the enormous sum of cash to pay for my shares. It dates back to the days of paper certificates which had to be physically moved from a secure location to the buyer.

So If I Want to Buy a GIC, How Long Do I Have to Wait After Selling a Stock?

When I sold some shares on a Thursday in 2012, to my surprise, the sale value showed up immediately in my “cash” listing with BMO InvestorLine. Being a suspicious sort, I emailed BMO and asked when I could actually use that money to buy a GIC.

BMO replied that I have to wait until at least Monday, 2 full business days after the trade because in 2012 trades settled in T + 3 business days.

The GIC purchase order would go in overnight to take place on Tuesday, and the settlement of my stock sale would also take place over that same night, so the cash would be in my account on Tuesday to pay for the GIC.

GICs, as you can see, settle one full business day after the purchase order is placed. Stock sales settled 3 full business days after the purchase or sale order is placed in 2012. Because these deadlines don’t line up, you have to be careful.

Now, in 2023, with a settlement date of T + 2, if I sold a stock on Thursday, I could place an order to buy a GIC on Friday, and both the purchase and sales would close on Monday.

Being a naturally cautious person, I think I would wait till the settlement date to place a GIC order. Although if there was a super-incredible rate available, I guess I might test the system and place the order on the day before settlement, as suggested.

If I Want to Buy a Mutual Fund, How Long Do I Have to Wait After Selling a Stock?

Presumably, the BMO answer would be the same for a mutual fund. In 2023, with T+2 settlement, the order could be placed on the first full business day after the sale of the stock, since it would not be effective until the second business day after the sale. Again, as an ultra-conservative investor, I would likely wait till the trade had settled before placing the order.

If I Want to Buy Another Stock, How Long Do I Have to Wait After Selling the First Stock?

Stocks are easier. For either a purchase or a sale of a stock in 2023 the settlement date is the trading date plus 2 trading days. So if you sold a stock and then bought another different stock later that same day, it would work, because the settlement dates would be the same day.

The settlement dates would also be the same if we do migrate to T+1 in the future.

The Moral of the Story: Watch Out for Differing Settlement Dates!
I have a sneaking suspicion that these self-directed brokerage accounts have been set up so that they will not let you buy or sell unless your settlement dates line up. But I guess if you have the option (little financial pun there, catch it?!) to spend money you don’t have in your account (I believe that’s called working on “margin”) then it might let you put through a purchase when you don’t have the funds available yet from your sale. So make sure you know your dates will line up, and as the Sergeant used to say on Hill Street Blues “Be careful out there.”

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How Can BMO InvestorLine and CIBC Investor’s Edge Offer GIC Purchases and Sales with No Commission Fees?

In 2012, I was surprised to see the annual interest rates for GICs offered for sale on InvestorLine and Investor’s Edge were the same or higher than the posted rates for GICs purchased directly from the respective financial institutions. Since BMO and CIBC didn’t directly or noticeably charge a fee or commission for the purchase of GICs, in 2012, how could they make any money by offering this service?

UPDATE: As of January 2019 (and probably before then) I can NOT buy a GIC inside my brokerage accounts with the same rate as one bought directly from the financial institution. Big BAD change!

Written: 2012
Reviewed: 2023
Revised: 2023

A Hidden Fee When Buying a GIC

Whether you buy a GIC from a bank or trust company directly or whether you buy it through a broker like InvestorLine, you are paying a hidden cost.

You are agreeing to an interest rate that is less than the value of your money to the financial institution. Part of the profit they are making selling you the GIC at that rate is used to pay a commission to the seller. The commission might be paid to a local branch office, to a broker, or to InvestorLine or Investor’s Edge. So although it looks like you are not paying a commission or fee to purchase a GIC through a self-directed online account, you still are.

Under new rules, in 2023 if you start to buy a GIC at BMO InvestorLine, you will be shown a message telling you that a ‘hidden’ fee or commission is being paid to InvestorLine which is included in the interest rate you are receiving.

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Do you manage your GICs through an online brokerage? Or do you use a fiscal agent as your broker? Please share your experiences with a comment.