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Scotia iTrade US$-Friendly RRSP

Scotia iTrade announced that they have just joined the US$ RRSP party. They are a bit late considering that Questrade was the first brokerage to offer a US$ RRSP three years ago and RBC Direct and Qtrade have also offered a US$ RRSP account for some time.

With friends like this, who needs enemies? Anonymous

They are offering a “U.S.-Friendly RRSP”, which is a special program to give a better currency rate for investors selling and buying US$ securities in their iTrade account. This feature is optional and costs $30 per quarter, which of course, works out to $120 per year.

Read my Scotia iTrade discount brokerage review.

Why would you want a US$ RRSP?

Traditionally, all RRSP accounts settled all their trades in Canadian dollars. The problem is that if you sell a US$ security, you have to pay a currency conversion charge when the proceeds get converted to Canadian dollars. This fee can be quite significant.

If you would like to compare the different exchange rates offered by all the Canadian discount brokerages, check out the Canadian discount brokerage comparison.

If you want to buy another US$ security, the money will get converted to US$ again and another currency conversion fee will be charged. Doing this “round trip” can easily cost 3 or 4%, which is a significant drag to your investment performance.

Questrade discount brokerage created Canada’s first US$ RRSP account where you can choose the settlement currency and avoid all currency exchange fees if you are selling and buying US$ stocks. You still have to pay currency exchange fees for new Canadian dollar contributions, but once the money is converted to US$, it stays in US$ and there are no currency exchange fees.  They also accept US$ contributions and no conversion is required.

Read my Questrade discount brokerage review.

Scotia iTrade US$ RRSP still charges currency exchange fees

According to the Scotia website, if you sell a US$ stock or ETF – a Scotia Capital currency conversion rate (SCI rate) will still be charged. I phoned Scotia and a rep told me that this rate will be about 0.5%.

This means that if you sell a US$ stock and then use the proceeds to buy another US$ stock, your total currency conversion cost will be approximately 1.0%.

The regular Scotia iTrade currency exchange rate is 1.5% to 2.0%, which is one of the highest in Canada. The exact rate depends on the size of the transaction.

Under the regular Scotia rates, an investor who sells and buys a US$ security will pay total currency conversion rate of 3% to 4%. With the new “friendly” program, that same investor would pay 1% conversion rate.

A 1% currency conversion rate is far superior to a 3%-4% currency exchange rate. On a $25,000 sell and buy, an investor would save $750 to $1000, depending on the exact exchange rate. Yes, currency exchange fees are that high.

Is the Scotia iTrade US-Friendly RRSP a good deal?

This program is a good deal if an investor meets the following conditions:

  • Already a customer at iTrade – This feature is certainly not worth switching to iTrade for. If you are currently paying a lot of money in your RRSP for currency conversions, you should look to Questrade, RBC Direct or Qtrade to save money.
  • Savings from lower exchange rate on US$ sell/buys is greater than $120 per year – Even if you are an iTrade investor – make sure you are paying enough conversion fees to make the program worthwhile. If you only purchase Canadian based equities, this program won’t save you any money. Note that the security has to actually trade on a US$ exchange for currency conversion to be relevant. If you own an ETF based in Canada, such as the iShares XSP S&P Index ETF – this trades in Canadian dollars, even though it is based on a US stock index.

If you would like to compare the different exchange rates offered by all the Canadian discount brokerages, check out the Canadian discount brokerage comparison.

12 replies on “Scotia iTrade US$-Friendly RRSP”

Mike
I’m having a dickens of a time trying to get info from the iTrade reps about the US-friendly RRSP. I was told the CSI Rate used to do a currency conversion on a $5K to $25K order has a mark-up of 1.65% to buy or sell — for a roundtrip cost of 3.3%. A second rep said the same thing. Yet, the rep you spoke to said the commission was 0.5% one way — or 1% total? I am I missing something? And it looks like they apply the higher retail spread when converting Canadian cash back to US dollars? Why do they make these things so complicated?

Hey Mike.
Regarding my question about a retail spread being charged, I have a clarification (after poking around a bit more). It’s levied on the conversion into C$ of “U.S. dollars deposited into these accounts (including U.S. dollar denominated dividends and interest).”

Larry, the scenario that I discussed with the rep was where an investor has signed up for the “friendly ” account and is converting US$ that are already in the account (ie the initial conversion has already been paid) to Canadian dollars (because they sold their US$ security) and then back to US$ when they buy another US$ security.

The regular retail spread (1.65%) is applied only for new money in the account – ie if you contribute Canadian dollars and want to convert to US$.

From what you are saying, perhaps they don’t accept contributions in US$?

This account is confusing because it is not a real US$ RRSP, which makes it more complicated.

Hi!

Any idea if iTrade will still do wash trades over the phone or will we be required to use this new service?

One of my dad’s favourite idioms is “he’s a day late and a dollar short.”

Sounds like this fits the Scotia bill.

I’ve had my US denominated securities in an RBC Direct Investing RRSP with no real problems (there were some early bugs with book value, but that was sorted out with a simple phone call) since they started offering that option last May. There is no fee to do so; it is automatically there.

“US$- Friendly”… that’s hilarious.

@Myke – I have agree with you.

I do give credit though to Scotia for instituting a method for some of their current clients to save money. Plus, I’m sure there were a lot of Scotia employees who worked very hard to make this change happen.

Thank you for taking the time to discuss us.

I’d like to take this opportunity to answer some of the questions around this offering.

The FX treatment in a regular registered account is based on a spot rate (inter-dealer reference rate on which retail rates are based), and a retail FX spread which may vary, depending on:

– the size of the transaction,
– whether the transaction is cash or securities based,
– if the currency being bought or sold,
– and prevailing market conditions.

Clients enrolled in the U.S.-Friendly RRSP will not be subject to a retail spread on FX conversions for U.S. equity, options and mutual fund trades executed in the account, and a mid-market SCI Rate will be applied to the trades executed. [FYI – 01/18/2011 rate: USD/CAD 0.9924 (CAD/USD 1.0077)]

However, cash transactions in the account involving the conversion to Canadian dollars of U.S. dollars deposited into the account (including U.S. dollar denominated dividends and interest) will be subject to the applicable retail foreign exchange spread charged by Scotia iTRADE at that time. U.S.-Friendly can be activated on any new and existing registered accounts including TFSA’s. It is not mandatory and customers may continue to enjoy our “No Annual Fee, No Minimum Balance RRSP” account with Scotia iTRADE.

@Fernando: Washing trades will no longer be available over the phone.

Feel free to e-mail me directly [nabil@scotiaitrade.com] or contact our Customer Service Team [1.888.872.3388] if you have any questions. Hope this information helps.

Thanks again,

-Nabil

I posted this on the Canadian Capitalist a few days ago, before I knew the spread was 50 basis points. My points remain the same, and I see no reason to stick with iTrade anymore since I can no longer do wash trades:

I spent a bit of time with customer service, so here’s an update on the US-friendly account for iTrade that, imo, gives you no reason to use / stay with them. Basically I’m going to look into transferring everything to RBC / Questtrade now.

REGISTERED ACCOUNTS NO LONGER SUPPORT WASH TRADES.

While there are still some ways around FOREX fees, it makes your life significantly harder. Assume this is your TFSA account:

Scenario 1: You’re holding US stocks you want to sell so you can buy another US stock on the same day

Old method: Sell US, buy US, call next day for wash trade. COST: 2 comission fees.

New method: Register for a US friendly account and wait till it’s activated, then you sell and buy US the same day, then you cancel the US friendly account before the quarter ends. COST: 2 commission fees + $30 + lower spread rate (let’s just assume there’s no spread)

Comment: you still can’t park USD in cash, but in RBC you can (can someone confirm this?).

==========

Scenario 2: you just contribued CAD cash to your TFSA and you want to buy a US stock (but want to avoid FOREX)

Old method: buy CAD interlisted stock, call for interday transfer TSX –> NYSE (takes less than 2 minutes usually), sell on NYSE, buy US stock same day, and then call for wash trade. COST: 3 commission fees (in my experience, this will save you about $150 in FOREX fees if you’re buying $5000, remember, iTrade spread is the one of highest amongst the banks at 2%).

New method A: similar to above, you register for US-friendly account and wait till it’s activated, make your trade, then cancel the account before the quarter ends. COST: 1 commission fee + $30.

New method B (better method): contribute to your TFSA in kind instead. Call a service rep, and you can obtain their FOREX rate from yesterday (not subject to any spread), then you can negotiate at what price you want to contribute (yesterday’s closing price, lowest price, highest price, etc), then the rep will calculate how many shares you can transfer without over-contributing.

==========

Miscellaneous bits:

Q. Even if I open a US-friendly account, how will I know what the FOREX fee will be?
A. You don’t. The rep informed me the rate gets posted at the end of the day, and while I couldn’t get a firm answer on what the spread would be, he told me it would be signficantly less than 2%. Either way, he said, since the spread is uncertain, “I would leave a cushion of 2% just in case, so don’t over purchase shares”.

Bottom line: I know some of the above maneurvers aren’t for everyone (esp. scenario 2), but at least I knew, down to the penny how much money I could work with and I could do it anytime. Now, I have to wait to register a new account, still pay some FOREX (even at a preferred rate) and still not know exactly what that rate is in real time, then have to cancel that account, and it cost more than my old method (ok, I really don’t care about paying $20-$30 more tbh). BUT IT’S SUCH A CLUNKY WAY TO TRADE, and this is coming from somone who rarely sells, and just makes a few purchases a year to balance my portfolio.

Sorry for the long post. But for those of you with RBC / Questtrade, how do you like it? Is there anything I should be aware of that make things “annoying”, bc from where I’m sitting, there’s no reason for me NOT to switch to either of them.

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