I have a quick question for you today: Do You Have a US RRSP Account?
A simple question that comes with a terrific consequence if you answer “no” and you are trading US stocks. The US stock market is the most interesting stock market in the world and ignoring it could be a very big mistake. I have holdings in INTC, CVX, KO and JNJ (and they are all showing positive returns for 2011!).
The RRSP account is the only account where you can hold US stocks without paying withholding taxes. But have you ever looked at the conversion fees your broker is charging? This is often a reason for investors to forget about the US stock market (and leave so many great opportunities on the table!
If you want to invest in the US market, you basically have 2 options:
a) Have a CDN$ account and your US holdings will be converted automatically (dividend payouts included)
b) Have a US$ account and your US holdings will be kept in the same currency (dividend payouts included).
The main difference between the 2 is that when the broker receives money for your account (from the sale of a US stock or a dividend payout), they will automatically convert it into Canadian dollars if you don’t have a US account. If you want to cash this money or invest it in a Canadian stock, that’s fine. However, if you are thinking of buying another US stock (which should be the case as all US stocks should be held within your RRSP), you are likely paying some hefty conversion fees.
Consider the following example:
Currency rate is as follows: The broker is buying US dollars at $0.9851 CDN and selling US dollars at $1.0379 (don’t laugh, I took these numbers from a Canadian bank website).
You sell 100 shares of KO @ $68.35 USD for $6,835 USD.
The $6,835 USD is then received by the broker who “buys” the US dollar and converts it to your account at a rate of $0.9851. Therefore, you will receive $6733.16 Canadian dollar in your account.
If the same day you buy shares of INTC with your $6,733.16, you will only have $6,487.29 US dollar to make your trade.
Therefore, the conversion process costs you $347.71 US dollar or 5.08% of your investment.
So in a split second, you just wiped out more than the dividend yield for an entire year simply by selling and buying US stocks! I don’t think you want to burn 5% of your money each time you do a US transaction, do you?
So I would guess by now, it’s pretty obvious that if you hold US stocks, you need a USD RRSP account ;-). Quit searching around the web to find which Canadian brokers offer this option; I’ve done the work for you. Here’s the chart that I created to the best of my knowledge (click on the name of each broker to go to their website).
|Broker||Trading Fee||Minimum Amount|
|Questrade||$4.95 (495 shares or less) to $9.95 max||
|Jitney Trade||$9.99 + $25 inactivity (if < 3 trades/quarter)||
|QTrade||$19.99 (< 30 trades/quarter or < $50K)$9.95 (30-149 trades/quarter or >$50K)
$7.00 (>150 trades/quarter)
|RBC Direct||$28.95 (< 30 trades/quarter or < $50K)$9.95 (> 30 trades/quarter or > $50K)||None|
|BMO Investor Line||$29 (< 30 trades/quarter or < $50K)$9.95 (> 30 trades/quarter or > $50K)||
According to this chart and many reviews, Questrade is probably the strongest broker in Canada at the moment. The link to open a Questrade account is an affiliate link but if you look at their trading commission structure ($4.95) and the fact that they are offering USD RRSP account, you will find that I’m not biased ;-).
So next time you are about to buy a US stock, make sure you do it in your USD RRSP account!