Wednesday, 10 December 2008

Fees and Deals on TFSAs at Banks and Discount Brokerages

The TFSA starts January 1st, 2009 and it's time to pick one. But as usual, though the tax rules are the same for all the way each bank and broker implements and charges fees can vary. Rob Carrick warned about fees and provided some numbers in this Globe article. CanadianCapitalist summarized the range of options for TFSAs in this post.

Being the type of guy who always wants to compare options and find the best deal I have taken Rob's work a little further and done some browsing and phoning to make up a little spreadsheet that shows what I have found. Given the sorry state of information flow within large financial institutions to both customer service reps (a blogger does not have access to the insiders with the exact knowledge or authority so one gets the "real customer experience" in trying to dig up information) and websites, some of this info may not be correct.

The Best Deal in my opinion is .... Outlook Financial's 5% 5-year cashable GIC. When I phoned earlier today the rep assured me that one can lock in the rate today even though the money can only go into the account as of the legal start day of January 2nd. The astute will observe that Outlook has an ad on my website so you can be sceptical about my motives for recommending them but I invite you to try finding a higher GIC rate. Go to Money Rates for GICs do the sort from high to low and Outlook's is the highest in Canada bar none. The only slight downside is that the guarantee for payment of principal and interest comes not from CDIC but from the Credit Union Deposit Guarantee Corporation of Manitoba. If the CDIC safety net is a requirement for you, then National Bank's 4.1% 19 month GIC looks attractive, as does Bank of Montreal's 4.3% 3-year promotional offer.

The bottom line for the discount brokers is that there is little to distinguish them with respect to TFSA alone. My own broker BMOIL is the only real outlier with a fee of $25 per withdrawal. The big drawback for all the brokers is the presence of hefty $125-135 fees for transferring an account to another institution. Among the things to consider:
Some brokers are not even offering TFSA accounts, like QTrade rated #1 in the Globe ranking or E*Trade (that's why they aren't on my spreadsheet). CIBC Investor Edge's offering is coming "March-April" 2009 while ScotiaMcLeod Direct will only have application forms ready (and confirmation of fees) on Dec.22nd.

Whatever you do, go open a TFSA as soon as possible, especially before the unholy alliance of Libs/NDP/Bloq gets into power and starts reversing the "errors" of the Conservatives. Who knows how long the TFSA might last.


Charles said...

Qtrade has not made an outright announcement with their commission structure, but there is a TFSA link on their web site:

This would seem to indicate they'll do it.

I'm presently a Credential Direct customer and I've been happy with them, so when they announced no annual fee and no withdrawal fee (although there's a transfer-out fee), that was good enough for me.

CanadianInvestor said...

Thanks for the info, Charles, that's very useful.

Jordan said...

Thanks very much for providing the Canoe GIC Rates link, I've been looking for something like that for a while. I'm still learning about fixed income and really had no idea how to compare the rates available.

Slightly off topic, but if I may ask... I'm looking to invest in bonds/gic for the 20% safe portion of my long term investments. It's suggested to buy a bond index like XSB or start a bond ladder, but with a 5% rate right now would it be better to just lock all or most of it in if I don't need any income out? Or is it still better to spread it out? Thanks!

CanadianInvestor said...

Hi Jordan. Glad that Canoe link is useful. Sometimes the incidental info is better than the gist of the article, huh? ;-)

For the fixed income question, I wrote a detailed post last year about the pros and cons, which hopefully can get you down the road to deciding which route is best for you. The only thing I would add is that I am more and more becoming a fan of real return bonds since they maintain their value and provide after-inflation gains no matter what the economic situation. If inflation takes off in a few years as a result of all the monetary expansion going on right now, then locking in 5% won't be much good. Real return bond yields are reasonably good right now at around 2.5% (see link in the right column of this blog under resources to get actual numbers right at the bottom of their page in a tab). There is a fund XRB for these but I don't believe it is useful or necessary to diversify, or incur the MER hit of the fund, since I plan to keep them till maturity and the issuer (Gov. of Canada) is about as safe as one can find.

Jordan said...

I really appreciate answering my bond question so quickly. Your bond ladder article was exactly what I was looking for. And you make a good point about inflation risk. +3% inflation makes a 2.5% real return bond look pretty good. Does a real return bond have the same level of negative correlation to the stock market like short term bonds?

Actually the TFSA article is very good as well, it's got me rethinking things.

One thing about your cost spreadsheet is Questrade doesn't charge you to close your an account, only to transfer. So if you wanted to move you could cash everything out on Jan 1st, close the account and re-deposit the amount somewhere else without losing anything contribution room or paying any fees.

Other places will probably cover transfer fees once the TFSA assets get larger.

CanadianInvestor said...

You are welcome Jordan.
Re the TFSA withdrawal to avoid transfer fees, yes that can be done but the CRA rules do not allow you to put the money back back into a TFSA until the following year.

As for the real return bond question, the answer is that it functions like a separate asset class, uncorrelated to both regular bonds and equities, but it's worth another post with some details.

Anonymous said...

That Canoe site is not always showing the true rates, as sometimes there are temporarily bonus’s that won’t show. But it’s a good start for research, for sure. Rates are dropping lately as well.

Believing that the rates for High-interest Savings and GICs are going to drop soon, I locked in some “interest-bearing” money to 3-year GIC with Canadin Tire Financial (min. $20K, cashable with lower rate), using several purchases of $20K each so as to keep flexibility. The rate of 4.45% included a .25% incentive.
Canadian Tire Financial:

HAH! I checked above and they have just reduced the rate yesterday, Dec. 11, to 3.75%, but still offer the .25% bonus, so it would be 4.0% on 3 year term.

CanadianInvestor said...

Alan, good on you. Ya gotta be quick in this world!

Anonymous said...

Can you tell me if Currency Options trades through the Philadelphia Stock exchange, could be handled through a TFSA with any of the financial institutions offering them?

CanadianInvestor said...

fundseeker, it appears that yes, you can trade such options in a TFSA. It looks like trading is now through Nasdaq. cf

I've checked BMOIL and they show up as tradable symbols there so likely they will be offered at all Canadian brokers since they all offer access to Nasdaq.

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