Scotia iTrade announced today that it will start offering an US-Friendly RRSP account for a flat fee of $30 per quarter per RRSP, TFSA or RESP account. The US-Friendly account will not be an US-Dollar RRSP account like the one offered by RBC Direct Investing. The account will still be denominated in Canadian dollars but instead of charging account holders the retail exchange rate, iTrade will charge a preferential Scotia Capital Inc. (SCI) mid-market rate.
Advantages
I called Scotia iTrade today to get a handle on how much US-Friendly account holders can save on foreign currency transactions. A client purchasing $10,000 (US) worth of US-dollar securities in a regular account will be charged $10,089 in Canadian dollars. Another client making the same transaction in a US-Friendly RRSP account will be charged the SCI rate of $9,924. On a $10,000 (US) transaction, the US-Friendly account holder would have saved $165 in hidden foreign exchange fees.
The US-Friendly account holders can avoid automatic foreign currency conversions on US dollar buys and sells transacted on the same day because both trades will be converted at the same exchange rate. An investor selling and buying US securities in a regular Scotia iTrade RRSP account would have lost $330 in (needlessly) converting US dollars into Canadian dollars and back into US dollars again. Note that a few other brokers such as TD Waterhouse already wash US dollar trades in RRSP accounts.
Disadvantages
You have to weigh the benefits of getting a preferential exchange rate against the quarterly fee of $30 per registered account. You still have the option of having a regular, no-fee, registered account.
US dollar dividends received in a US-Friendly account will still be converted to Canadian dollars at the retail exchange rate.
All cash conversions from CAD into USD or vice-versa will continue to be converted at the retail exchange rate. The preferential rate will only apply for US dollar trades.
Bottom Line
Despite the quarterly fee, Scotia iTrade clients who tend to purchase a lot of US-Dollar securities in their registered accounts will see savings with a US-Friendly RRSP. As someone with accounts at TD Waterhouse, I don’t see a compelling reason to switch. I can obtain all the advantages of the US-Friendly account at TD Waterhouse when I exchange currencies with the “Norbert Gambit” and the disadvantages remain the same. Now, if only Scotia iTrade had decided to offer a US-Friendly, US-Dollar RRSP account, I might have been sorely tempted to switch!
Also check out coverage of the US-Friendly RRSP by The Wealthy Boomer and Money Smarts Blog.
