Archive for September, 2007

This and That

September 7, 2007

  1. As the Bank of Canada decided to keep interest rates steady, the prime rate stays at 6.25%. The Bank noted that “there are significant upside and downside risks to the outlook for inflation”, which seems to indicate that the future direction of interest rates is unknown at this point. In its previous meeting in July the Bank had hinted at a “modest future increase”.
  2. The income trust saga continues. The Liberals are floating proposals such as a 10% tax on trusts refundable for domestic investors and allowing new energy trusts to form.
  3. A column in The Financial Post suggests that Canadian REITs are trading at roughly a 4% discount to net asset value.
  4. I had an opportunity to meet other Ottawa area financial bloggers at a local Starbucks last night. In attendance were Larry MacDonald of Investment Ideas Blog and the bloggers behind Canadian Financial Stuff, Canadian Money Blogs Reviewer and Dividends Matter. We chatted for two hours about blogging, finances and adventures in the equity markets and we’ve agreed to meet again.
  5. Jonathan Chevreau and Rob Carrick offer mortgage advice in their respective columns in The National Post and The Globe and Mail.
  6. Laura Rowley offers four tips for navigating these choppy markets.

Canadian Tire One-and-Only Account

September 5, 2007


Canadian Tire has decided to offer more financial services and is now offering mortgages and a combined mortgage, loan, chequing and savings product (similar to Manulife One account) called the One-and-Only account in Ontario, Alberta and BC. The idea behind combined accounts is that by consolidating your debts into one account, you take advantage of the lower interest rate on your mortgage and save some interest on the time lag between your incoming and outgoing cash.

In theory, the one account is a great idea. In practice though, there is one large problem: the interest rate on these combined accounts is at prime, whereas typically you can easily get a 0.90% discount to prime with a traditional variable rate mortgage. On a $200,000 mortgage, the traditional variety starts out with roughly a $1,800 per year advantage. Now, let’s imagine that your household net income is $5,000 that is paid into your account on the first of the month and everything is spent or saved by the end of the month. So, by keeping $5,000 in your account for roughly the entire year, you are saving $300 in interest costs with a combined account. In this scenario, your “savings” from a combined account does not make up for the cost of not opting for a traditional mortgage. You can check out different scenarios using the nifty calculator on the Canadian Tire website.

Call me skeptical but until these accounts start offering a discount to prime, the basic math just doesn’t work out. Still, the One-and-Only account is a significant new competitor to the Manulife One account (review by Million Dollar Journey) because there are no monthly fees.

How to Quickly Fund Your Questrade account with US Dollars

September 4, 2007


Recently I transferred our investment accounts to Questrade to take advantage of commissions as low as $4.95 per trade. However, I found that funding Questrade (Read my review) with US dollars was very frustrating. First, there is no free way to fund the account other than sending a personal cheque. But if you do send a personal cheque, Questrade puts a hold on the funds for 20 business days, irrespective of when the funds actually clear. For example, I mailed a USD cheque drawn on our RBC USD account on August 9th and the money was taken out of my account on August 15th but won’t be available in my account until September 9th at the earliest.

Emil Vojkollari, Client Acquisitions Supervisor at Questrade, explained that the broker had to institute a long holding period after getting burned by bounced cheques in the past. Still, if the funds were cleared out of the bank account, clients would want it to appear in their trading account fairly soon after.

Mr. Vojkollari then suggested a workaround until Questrade implements a way to pull USD funds from the client’s account: Fax a letter with your name, Questrade account number and a copy of the online bank statement (with bank account number, name and cheque number) that shows the cheque cleared to 416-227-0078 (Attn: Accounting). To be doubly sure, I also faxed a copy of the canceled cheque and the funds were deposited in my trading account within 24 hours. Note that this process will work for personal cheques in US and Canadian dollars and only if the steps are exactly followed.

As I fund my investment account with US dollars roughly twice annually with the proceeds of the sale of shares from the ESPP program, the temporary solution is an acceptable alternative. I should also add that I was pleasantly surprised at how proactive Questrade was in finding a solution even though from their point of view, the manual process outlined above is probably quite expensive.