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Transferring US Dollar Funds out of PayPal

August 22, 2007

251 comments

I use PayPal to receive payment from sponsors on this website and small coding projects for clients. Almost all the payments are received in US dollars but transferring funds into your Canadian-based US dollar account from PayPal is not easy. Exchanging US funds into Canadian dollars in PayPal is not ideal because PayPal charges a steep currency conversion fee of 2.5%. If you have a RBC US Dollar account, here’s how you can transfer US dollar funds from your PayPal account into your chequing account (it took me a few iterations to get it right):

  1. Log into PayPal and click on My Account, then Withdraw followed by Transfer funds to your bank account. In the Withdraw Funds by Electronic Transfer page click on Add Bank Account.
  2. In the Add a Bank Account page, select “United States” as Country and type in “Royal Bank of Canada” as the Bank Name.
  3. Enter the 9-digit routing number exactly as suggested by the graphic. Royal Bank’s routing number is “026004093”.
  4. Since the trick is to get the account number correct, ignore the example suggested by the graphic. Instead, enter the five-digit transit number of your account followed by your actual account number. You can also get the exact sequence of numbers (transit number followed by account number) from your monthly statement or online.
  5. Re-enter the account number and click Continue. Wait for PayPal to make two small deposits into your bank account and then confirm that you have added the bank account successfully in PayPal by entering how much was deposited.
  6. Once confirmed, your US-dollar account will show up in the To field in the Withdraw Funds page and you should be able to transfer funds in US dollars into your USD chequing account.

I am not sure if this method would work for US dollar accounts held at other financial institutions. If you’ve successfully transferred US dollar funds to and from PayPal, I would love to hear from you.

Questrade Review

August 13, 2007

214 comments

I recently switched our investment accounts to Questrade (thanks to Million Dollar Journey’s referral and review) and thought I would add my two cents on my experience so far. To be honest, I was attracted to Questrade by their ultra-low commissions. Questrade has two commission plans: you can either opt for the flat $9.95 plan or if you usually transact less than 1000 shares, you could opt for the cheaper $4.95 plan. As I only buy stocks like VTI (trading at around $145), VEA (trading around $48) and some of the Canadian blue chip companies, I would typically be paying only $4.95 for making a trade.

Pros:

  1. Low commissions. $4.95 per trade is very attractive considering that I was paying $29 at the big bank brokerage.
  2. Opening an account was straightforward and intuitive. Transferring securities and cash in-kind was smooth.
  3. Questrade offers live help via chat that is very useful if you work with computers in a cubicle. You can get your queries answered while working instead of waiting on the phone for a customer rep. I have been able to get help whenever I needed it and almost always the issues have been resolved.

Okays:

  1. The 1% fee charged on foreign exchange transactions is comparable to major competitors.

Cons:

  1. As the broker’s target audience seem to be traders and not investors, there is a learning curve involved in using the trading platform.
  2. Questrade does not offer EFT transfer for US dollar funds. To move US dollar funds you have to write a cheque that takes as long as 20 days to clear or request a cheque and then make a visit to your bank to deposit it. It is a mystery why Questrade cannot offer EFT transfers when E*Trade does.
  3. When you open an account with Questrade, you will have to remember three passwords: one each for MyQuestrade (for adding, withdrawing, exchanging funds, requesting help etc.), WebTrader (the trading platform) and Penson Financial (for accessing account history etc.).

If you are willing to put up with some quirks, Questrade’s low commissions might make a switch worthwhile if you are paying $29 at your current broker. You may also want to check out the reviews of other discount brokers: BMO InvestorLine, Credential Direct, Qtrade, RBC Direct, Scotia Direct and TD Waterhouse.

[Update: Frustrated with Questrade’s customer service representatives, who couldn’t promptly fix an error on their part, I moved out of Questrade in a few months.]

Is a Group RESP Plan Right for You?

March 26, 2007

413 comments

First off, I would like to thank frequent commenter Mike for suggesting this topic. Though I have set up a self-directed RESP for my boys, I had not researched scholarship plans in detail. The little I did read about them suggested that I should stay away. Nothing that I learned while researching this post made me change my mind.

How do these plans work?

In a Group RESP plan, contributions are pooled together and invested in fixed income instruments. For an overview of how a Group RESP plan works, you can refer to pages 25 to 32 of this prospectus.

What are the fees involved?

You should keep in mind that there is no such thing as a free lunch. Scholarship plans are heavily promoted at doctor’s offices throughout the country. They also employ agents to sell their products. Guess whose pocket these expenses come out of?

In a typical plan, you’ll pay an enrolment fee of $200 per unit. If you enrol your newborn in a group plan, you are agreeing to invest $105 for each unit every year. The enrolment fee may be refunded to you, in portion or in full, when your newborn enrols becomes a qualified student. Note that you won’t receive any earnings on your enrolment fee.

You will also pay depository charges, administration fees, trustee fees, custodian fess and investment fees. These fees alone (excluding the enrolment fee) add up to more than 0.60% of total assets.

What are the advantages of a Group RESP?

When a contributor withdraws from a group plan, only the initial investment (less enrolment fee) is returned. The earnings on the investment stay within the plan and is shared by children who become eligible to receive payments. If the earnings boost from forfeited income were much larger than the total fees, you would benefit from a Group RESP.

What are the drawbacks of scholarship plans?

Lack of Flexibility: For most people, saving for their child’s education should have a lower priority than saving for their retirement or paying down their mortgage. If money is tight (a job loss or unexpected emergency), you should be able to skip a contribution to the RESP. Your flexibility is limited if you originally signed up for a regular contribution schedule. Also, you’ll derive full benefit from the program only if your child attends a four-year degree program.

Returns: You should keep in mind that scholarship plans are invested in low-risk and low-return assets like T-bills, bonds and mortgages. The return you should expect from scholarship plans will be similar to what you can get from bonds (around 5% currently) plus the earnings on capital of members who dropped out less plan expenses. It is extremely difficult to say how much the fees add up to and since it is not obvious, you have to assume that you will be left with more if you invest on your own. Also, note that fully one-third of returns are “discretionary payments” and around 12% was due to “attrition”.

Are there better options available?

In my opinion, you should carefully consider the alternatives and decide for yourself if they are better. I have a RESP set up for our kids with TD eFunds. There is no RESP administration fee and I am able to invest in one of the lowest cost mutual funds available. It gives me flexibility (I can decide to contribute or skip entirely. Remember, most people have other priorities like saving for a retirement and paying off their mortgage) and control (my kids are very young, so the portfolio is heavily tilted toward equities. If your kids have five years or so till university, you should be invested in bonds or GICs). In contrast, you have to keep contributing to a scholarship fund or you lose your membership. You also don’t have control over where the money is invested. It makes no sense that an infant’s college fund should be invested entirely in bonds.

Is there any drawback to self-directed RESPs?

Yes there is. Though it should take you an hour or so to set up and fifteen minutes every year to monitor, it is entirely your responsibility to do so. You should also be disciplined enough to take appropriate risks. You should not invest 100% of a 15-year old’s college savings in the latest investment fad.

What should I do if I have already enrolled in a Group RESP?

It makes no sense to stop contributing to a scholarship plan because only your contributions less fees are returned to you. You lose the earnings on your contributions as well as the matching grants provided by the government. The longer you have been contributing to a plan, the more important it is that you continue to do so.

Related: MoneySense article on RESPs; Comments section of Million Dollar Journey’s post on RESPs.