Tag Archives: ScotiaBank

How to Choose a Standard Bank Tax Free Savings Account, TFSA, with Minimal or No Fees

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When Tax Free Savings Accounts, or TFSAs, were first created in 2009 most banks offered the accounts with no fees to entice customers. It also was practical: Who would pay a $100/year fee for an account that could be opened with, at most, $5000? But in 2010, 2011, and 2012 another $5000 contribution was permitted, and in 2013 and 2014 a $5500 contribution was allowed. That means anyone who was 18 in 2009, and who lived in Canada in 2009 and each year after that, can now have up to $ 31 000 $25500 contributed to a TFSA, not counting any re-contributions of withdrawals. Unfortunately this also means that some banks are charging fees for TFSAs. This is a review of some options and what, if anything, they cost.

As with RRSPs, there are roughly two types of Tax Free Savings Accounts: those that can hold almost any type of investment, called self-directed TFSA brokerage accounts, and those that can only hold a very limited number of investment choices which I will call standard Bank TFSA accounts.

Fees for Standard Bank TFSAs that Can Only Hold Cash, GICs, Term Deposits and Some Mutual Funds

For many people, a tax free savings account is the first place they start saving for the long-term. It may hold their entire emergency fund. It may hold their savings for education, a first home, a wedding or retirement. They may have very little money saved or invested outside of the TFSA. These investors often start with a simple bank TFSA account.

Within the bank TFSA account, they can hold cash in a savings account that pays interest. They can also usually buy cashable term deposits, non-cashable guaranteed investment certificates (GICs), and mutual funds that are offered by that particular institution.

For example, if a client sets up a TFSA account at Tangerine (formerly ING Direct), they can use a daily interest savings account, buy a cashable GIC, or invest in the “Streetwise” mutual funds managed and sold by Tangerine ING Direct. They cannot buy mutual funds offered by other institutions, nor can they buy ETFs.

As shown in the table following, many of these bank TFSAs have low or no fees for most situations. That makes them appealing to beginning investors. Be careful, though, about fees for transferring and closing these TFSAs. You may want to move your TFSA in the future and those fees can sting.

If you know you ultimately want to move to a self-directed brokerage TFSA in a few years, to avoid transfer and closing fees either choose a no-fee bank TFSA (such as the one from Tangerine, formerly called ING Direct) or set up your bank TFSA with the bank affiliated with the brokerage you want to use in the future. For example, BMO does not usually charge a closing fee if a TFSA is moved from BMO to BMO InvestorLine.

BMO CIBC Tangerine
ING Direct		 National Bank
Set-up Fee  0  0  0  0
Transfer Fee  0 $50
  $100  0 $45
  $50
Closing Fee $50 + tax  $100  0 / $45  $50
Minimum Balance  $50  $25  0  0
PC Financial Royal ScotiaBank TD
Set-up Fee  0  0  0  0
Transfer Fee  $50  $50  $50  0** $75 plus tax
Closing Fee  0*/ $50  $50  $50  0**$75 plus tax
Minimum Balance  0  0  0  0

* The PC Financial/Tangerine situation is a bit mixed. It costs nothing to withdraw your entire cash balance from a savings account if you transfer it to your PC Financial/Tangerine chequing account. However it apparently costs $40 to close a mutual fund PC Financial TFSA. It should not have a fee to sell your Tangerine Mutual Funds so long as you have the cash move into your Tangerine cash TFSA savings account. You can then withdraw the cash from your Tangerine TFSA savings account for no fee–but you can’t transfer it out for free. PC Financial and Tangerine do not automatically close an account just because you withdraw all the funds, which is why it can be $0 to close but $50 to transfer.

** I was very surprised to find that TD is not charging a fee to transfer out or close a TFSA. This information was accurate on December 4, 2012. I would strongly recommend checking with TD to find out if this has changed before opening a new TFSA at TD,  just in case. UPDATE: As of early 2016, TD  now charges a fee to transfer out of a TFSA or close a TFSA.

February 2014 Update Sources

  • BMO: http://www.bmo.com/home/popups/personal/investments/tsfa-faq and
  • https://www.bmo.com/home/personal/banking/rates/tax-free-savings
  • CIBC: https://www.cibc.com/ca/investing/tfsa/tax-advantage-savings-acct.html
  • National Bank: http://www.nbc.ca/bnc/files/bncpdf/en/2/tarification_en.pdf#xml=http://www.nbc.ca/bnc/cda/searchEngine/0,2648,divId-2_langId-1_navCode-1000,00.htmlxml.txt?query=fees&query2=fees+fees+FEES+fees&query3=fees&pr=bnc_en&order=r&cq=&id=52f9af2e2
  • President’s Choice Financial: http://www.banking.pcfinancial.ca/mkt/investments/taxfreeinterestplussavingsaccount-en.html?region=ON&language=en&signinop=OB and click on the Fee link under the Legal section.
  • RBC Royal: http://www.rbcroyalbank.com/tfsa/tfsa-basics.html I can’t find the exact $ amount for the transfer out fee online, but as recently as 2013 it was $50.
  • ScotiaBank: I can’t find a specific number for the transfer out fee in February 2014. The $50 cost was valid in 2013.
  • TD: http://www.td.com/to-our-customers/tdhelps/#psce|cid=871|lid=1|tid=001|vid=b0f1321fe
  • TD fees on July 2016 (not for TD Direct Investing, just regular bank branch TFSAs)
    https://www.tdcanadatrust.com/document/PDF/accounts/513796-20160428.pdf

By Transfer Fee I mean the fee to transfer the money to a different bank or financial institution. Usually to transfer money back into your regular chequing or savings account at the same institution is free.

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 bank raises its fees just after I issue this report!

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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

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Have you found the best bargain for annual fees at a discount brokerage? Please share your experiences, good or bad!, with a comment.