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

Posted on 2013 02 13 by BetCrooks

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

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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.

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

Posted on 2013 02 12 by BetCrooks

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 !