Archive for April, 2013

RBC and BMO Offer Cheaper Business Banking Options

April 23, 2013


Many small businesses may make only a couple of banking transactions each month — a couple of deposits and maybe a withdrawal or two — but still end up paying a chunk of it in banking fees. As far as I know, there are no free business chequing accounts available anymore (HSBC Canada briefly offered a free business chequing account but doesn’t any longer). All the big banks offer a basic pay-as-you-go business chequing account for monthly fees ranging between $6 per month at RBC and CIBC and around $10 at BMO, TD Canada Trust and Scotia Bank.

If you average just one or two transactions every month and are unable to maintain a large cash balance, you should take a look at the RBC Business Essentials Savings Account. There are no monthly fees and no minimum balance requirements but you will pay $1 for every electronic or cheque deposit. The first two withdrawals are free but every subsequent withdrawal will cost $3.50. If you are averaging less than 2 deposits and 2 withdrawls every month, you’ll save approximately $50 per year in business banking fees. CIBC also offers a no monthly fee business savings account but since each debit transaction costs $5, any savings are likely to be quickly wiped out.

If you are able to maintain a large cash balance and perform a larger number of transactions, you may want to look into BMO’s Small Business Banking Plan. The account has a monthly fee of $9.50 which is waived if you keep a minimum monthly balance of $4,000. The plan includes a fair number of free transactions but keep in mind that a $4,000 balance translates into an opportunity cost of $40 (assuming a 1 percent interest rate). TD Canada Trust and Scotia Bank also waive monthly fees for maintaining a minimum balance but the limits are higher ($8,000 at TD Canada Trust and $5,000 at ScotiaBank).

Sleepy Mini Portfolio Q1-2013 Update (and TurboTax Online Giveaway)

April 18, 2013


The Sleepy Mini Portfolio has gained 6.7 percent my previous update. The Sleepy Mini Portfolio was launched in August 2007 with an initial investment of $1,000 with a target allocation of 20% bonds, 20% Canadian stocks, 30% US stocks and 30% International stocks to illustrate how a regular investment program can slowly build wealth over the long term. Another $1,000 was added to the portfolio every quarter since then for a total investment of $22,000 so far. Here’s how the portfolio looks as of April 18, 2013:

TDB909 – Canadian Bonds – $5,037 (19.0%)
TDB900 – Canadian Equities – $4,882 (18.4%)
TDB902 – US Equities – $8,336 (31.4%)
TDB911 – International Equities – $8,263 (31.2%)
Total – $26,518
Total Invested – $22,000

I’ve been a little bit tardy in adding new money to this portfolio. It’s better late than never, so let’s add another $1,000 to the portfolio and rebalance it to the original target allocation using this rebalancing spreadsheet. Here are the results:


TDB909 – TD Canadian Bond Index (e-Series) – Buy units for $420.
TDB900 – TD Canadian Index (e-Series) – Buy units for $580.

It is interesting to note how market leadership has shifted from Canadian stocks and bonds to foreign stocks.

TurboTax Online Giveaway

Thanks to TurboTax Online, I am giving away four (4) online coupons for filing one (1) tax return with TurboTax Standard, Premier or Home & Business. To enter just leave a comment in this post and don’t forget to include a valid e-mail address. If you are reading this through your favourite RSS Reader or via-email, you have to click on the headline, get through to the website and scroll down to the bottom of the page and type in your comment.

Some quick rules:
(1) No purchase necessary. A skill-testing question may be required.
(2) Deadline for entries is 11:59 p.m. EDT on Friday, April 19, 2013.
(3) One entry per person please.
(4) I treat your privacy very seriously. Your email will be used for the sole purpose of contacting you if you happen to win.
(5) I’ll pick four (4) entries at random and announce the winner after the deadline. All decisions are final.

New Currency Unhedged ETFs from iShares

April 16, 2013


ETF investors have long clamoured for Currency unhedged funds traded on the TSX for reasons outlined here, here and here. While it is true that Canadian investors can get direct access to foreign stocks through a long list of ETFs that trade in the US exchanges, these funds have one drawback that cannot be overcome — US-listed ETFs are considered in situ property and could be subject to US Estate Taxes. Granted, US Estate Taxes have become less problematic for most Canadian investors since the passing of last-minute legislation to avert the fiscal cliff. Essentially, Canadians with less than $5 million (US) in total assets will be able to avoid US Estate taxes entirely.

Still, Canadian-listed ETFs that do not hedge currency will be valuable for investors who do not want to look for cheaper methods of converting Canadian dollars into US dollars and who do not want to pay the usurious foreign exchange fees charged by most discount brokers. Last year, Vanguard Canada introduced the S&P 500 Index ETF (TSX: VFV, MER 0.18 percent), a fund that tracks the S&P 500 index. Now, iShares has launched three new ETFs that started trading on the TSX yesterday. They are:

iShares S&P 500 Index ETF (XUS): Track the S&P 500 index, a market-cap weighted index of 500 large US corporations. MER is 0.14 percent. Note that the ETF is essentially a wrapper around the iShares Core S&P 500 ETF (IVV) that trades on the NYSE Arca exchange.

iShares MSCI EAFE Index ETF (XEF): Track the MSCI EAFE index, a market-cap weighted index that tracks stocks from Europe, Australasia and the Far East (essentially an index of developed market stock markets excluding the US and Canada). MER is 0.30 percent. The ETF is a wrapper around the iShares Core MSCI EAFE ETF (IEFA).

iShares MSCI Emerging Markets ETF (XEC): Track the MSCI Emerging Markets Index, a market-cap weighted index that tracks stock market performance of emerging markets. MER is 0.35 percent. The ETF is a wrapper around the iShares Core MSCI Emerging Markets ETF (IEMG).

Take-away for Investors

  • These ETFs are great news for Canadian investors wanting Developed Markets ex North America and Emerging Markets exposure from securities listed in Canada but do not want currency hedging because the new ETFs are far cheaper than existing alternatives.
  • Investors should keep in mind that owning a Canadian-listed ETF that holds foreign securities in their RRSPs means incurring a 15 percent withholding tax hit on dividends. i.e. an investor who holds $1,000 worth of XUS in a RRSP will incur a tax hit of $3 per year compared to holding $1,000 worth of IVV. Note that the withholding tax hit is only for RRSPs and RRIFs.