Scotia iTrade US$-Friendly RRSP

by Mike Holman

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.

Be Sociable, Share!