Tag Archives: TFSA

How to Buy Units in a High Interest Savings Account Fund at RBC Direct Investing

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

As I mentioned, if your minimum balance drops below $50,000 in market value at RBC Direct Investing, you will no longer qualify for $9.95 trades. That’s making me nervous about investing all of my money into an ETF or stocks quickly. While I’m dithering, I decided to park some of the money in a high interest savings account fund within my RBC Direct Investing RSP account.

For those who are investing in a non-registered discount brokerage account, please remember that transferring money out of a *registered* account at a brokerage to a higher-paying HISA at another financial institution is very cumbersome. It involves using a T2033 form and can often take 6-8 weeks to get the money moved in one direction. Buying units in a HISA fund is the only practical solution to this problem for registered accounts such as TFSAs, RRSPs, RRIFs, LIRAs, RESPs, RDSPs, etc.

What HISAs Can I Buy Within my RBC Direct Investing RSP?

According to information on the Canadian Capitalist website, the three Canadian dollar HISA funds available through RBC Direct Investing online are: RBF 2010, 2020 and 2030. They appear to offer the same terms.

It appears that you cannot buy units in high interest savings account funds offered by other financial institutions. A kind reader pointed out to me, though, that by speaking on the phone with BMO InvestorLine he was able to get access to other HISA funds there, as he had already bought the maximum CDIC-insured amount of AAT770, $100,000. It’s possible a similar reason might allow a customer to purchase other HISA funds by phone from RBC Direct Investing. Unfortunately, I don’t have enough funds in this RRSP to try to test this.

Buying Units of RBF2010 from RBC Direct Investing

  1. Sign in to your RBC Direct Investing account.
  2. Click on the Trade tab.
  3. From the horizontal list, click on the Mutual Funds link.
  4. On the Mutual Fund Order Entry Step 1 of 3 screen
    1. From the Account #: drop-down list, select the account within which you wish to purchase the HISA units.
      Check the Available Funds: number is what you expected.
    2. From the Action: drop-down list, select: Buy
    3. Beside the Amount: field click to select the radio button beside either
      • Dollars including Commission; or
      • Units

      Then
      in the Amount: field, type the number of dollars or units you wish to buy.

    4. In the Symbol: field, type: RBF2010
    5. Click on the Show Quote button.
      Check the details of the quote. Today for RBC Investment Savings Account Series A it says the NAVPS/Yield is 10.0000, the Currency is CAD, the Inv. Min. Initial is 500.00 and the RSP Min. Initial is 500.00.
      When I clicked on the RBF2010 link in the detailed quote, it opened a screen of information about the product. It states the fund is a No Load fund. It says to go to http://www.rbcroyalbank.com/products/isa/index.html to see the current rate.
      I did, and as of today in December 2013, the rate is set at 1.25% for the CAD funds.
      UPDATE: On March 18, 2017 RBF2010 is paying 0.75%.
      It also states that “Liquidity since your money is accessible when you want with no locked–in periods or maturity dates.”
      It all looks good, so I returned to the order entry screen.
    6. In the Contact Phone: field, type your phone number.
    7. Click on the Continue button.
  5. The Confirm Transaction – Step 2 of 3 screen opens.
    Review the details. Note it says subsequent investments can be $25 or higher. This is much, much better than InvestorLine.
    If you like what you read, click on the Confirm button.
  6. The Transaction Complete – Step 3 of 3 screen opens.
    Copy the Order ID number into a document and save it for future reference.
  7. I then clicked on the Order Status link from the horizontal list of links under the Trade tab. The order is properly recorded there.
  8. Under the My Portfolios tab, when I check the Available Funds, the amount I just spent has not been subtracted from my Available Funds. I will have to be cautious and not spend the same amount twice!

What Did I Learn From Purchasing Units in a HISA at RBC Direct Investing?

  • I found it very odd that I was not asked to enter my trading password to make this purchase.
  • I was not asked if I wanted the interest payments deposited in my HISA or paid back into my trading account cash balance. (InvestorLine asks this.)
  • I was pleasantly surprised to find that the minimum investment is $500 and the minimum additional contribution is $25. At InvestorLine and Investor’s Edge, the minimum investment is much higher.

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Do you park your surplus cash in a HISA in your online discount brokerage account? Does the phrase “high interest” make you laugh scornfully? Please share your views with a comment.

Should You Save For Your First Home in your TFSA or your RRSP?

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As my faithful reader (Hi, Dad!) knows, I’ve been working my way through Gordon Pape’s How TFSAs Can Make You Rich. In it, he tries to deal with many of the most common questions about Tax Free Savings Plans, one of which is whether it’s better to save your down payment for your first home in your TFSA or in your RRSP.

Forget Where You Need to Save: Where Do You Need to Buy your First Home?

A close relative lives in a small town in northern Ontario where you can buy a house for about $17,500. The paper mill has closed. The mines closed long ago. There are not a lot of new people coming to town looking to buy.

Another relative, though, lives in the Vancouver area. I believe the monthly payment on her condo mortgage and fees is close to $1,750 given that most single family homes in her area cost about $750,000 now. So she’s spending about $17,500 each year for her home.

Obviously where you have to buy is going to affect how much you have to save.

Let’s Get Realistic: You Need to Save for your First Home in BOTH your TFSA and your RRSP

If you live in one of the real estate war zones you will need a fortune to buy a home. You can try to buy with less but if you do, you will probably end up very stressed and money will be tight. The Globe and Mail wrote about this recently in The rise of the miserable Canadian homeowner.

The most you can take out of your RRSP under the Home Buyer’s Plan is $25,000. If the home you want to buy costs $400,000, that’s only 6.25% of the price.

If you’re 23 or older, then the most you could have saved in your TFSA to the end of 2013 before growth is $25,500. That’s another 6.375%.

Don’t forget on a $400,000 home you may be expected to pay about $10,000 in closing costs. That’s another 2.5% you need to find somewhere.

Closing costs include provincial land transfer taxes, and if you’re in Toronto: municipal land transfer taxes. They also include lawyer’s fees, bank and mortgage fees, title fees, paying back any pre-paid property taxes, paying to start new accounts with utilities, etc.

You do know that you are probably going to have to pay $4000 a year or so each and every year in property taxes, right? Will you have the money for next year’s taxes sitting in the bank after you’ve paid for your home?

I think you need to save for your first home in both your TFSA and your RRSP.

A Purely Numerical Reason to Save for your Home in your RRSP

In his book, Gordon Pape runs some numbers to see if there is a simple financial advantage to saving for your first home in your RRSP or your TFSA. Based on contributing $3500 a year in before-tax income, it works out that you can save the $25,000 for your home in 6 years using a RRSP and in 8 years using a TFSA. (The actual math is a bit complex: check the book if you want the details. And remember he’s assuming you take advantage of the higher rate of contribution to the RRSP because you can use “before tax” money. )

So if your goal is to get a down payment accumulated faster, using the RRSP is the winner.

And if you have to buy in a ghost town in northern Ontario, your RRSP is the perfect place to save the entire purchase price.

For many of the rest of us, though, as I’ve said at least twice before: I think you’ll need to save in both.

Did We Save in Our TFSA or Our RRSP?

We’re ancient. There were no TFSAs when we were saving for our first home. We did, however, save both in our RRSPs and in our regular bank accounts.

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Are you saving for your first home? What strategies are you using to try to get there sooner? Please share your views with a comment.