How to move my TFSA to an online brokerage – Reader Q&A

Over the last few weeks I’ve received a number of emails from readers asking about Tax Free Savings Accounts (TFSAs).  Here is one example, paraphrasing and quoting where I can:

Hi, thanks for your blog.  I’m new to the investment scene, and “I’ve had my TFSA sitting in a bank account earning very little $$$.” Can you recommend any resources that will provide directions on how to move my TFSA to an online broker?

Thanks for your email.  Based on what little I know about this reader’s situation, today’s post will back things up a bit and provide the reader with a few considerations before making any big moves.

“I’m new to the investment scene…”   Step 1. Take your time

I can appreciate you’re anxious to get to your new account.  Based on my experiences, I can only suggest you take some time to understand why you are investing in the first place and what this new online brokerage account is for.  If you need some help to answer that, I suggest you speak to a financial advisor.  Here are some free-of-charge preliminary questions to consider:

• What am I saving for?  A house down payment?  A car down payment?  Something else?
• How soon will I need to access this money?  In a couple of years?  In a couple of decades?
• In case of an emergency, do I have access to any other money?

I’m convinced short-term savings are just that, these are not investments to me.  Saving up for a house, a car or even a vacation is not money I would tie-up in an investment product (stock, bond or ETF), so I’d be cautious about using an online brokerage TFSA for just cash.  If “I was new to the investment scene” (your approach may vary), I would be inclined to keep any money to be spent in the short-term (maybe a few months, maybe 1-2 years) in a high-interest TFSA; just in cash.  Just be aware interest rates for savings inside the high-interest TFSA are not fixed, they are not high right now, and can be changed according to market conditions.  Most brick and mortar and online banks offer this high-interest tax-free account to you, but you already know that based on your question.

Step 2.  “…how to move my TFSA to an online broker?”

Once you’re convinced your account should be moved to an online broker, consider opening a self-directed TFSA.  This type of self-directed account will allow you to hold more than cash inside the account, investment options include:

• Guaranteed Investment Certificates (GICs),
• Bonds,
• Mutual Funds,
• Exchange Traded Funds (ETFs),
• Stocks.

Before you make the move, be sure to find out if your current financial institution doesn’t already offer a self-directed TFSA or direct investing TFSA as part of their brokerage arm.  It might make your move easier to stay within the company.  If not, a quick Google search of “self-directed TFSA” or “direct investing TFSA” should give you a few names to check out.

To make the move, visit a bank branch or phone them.  Tell them you are looking to move your high-interest TFSA into a self-directed TFSA or direct investing TFSA at their bank.  They want your money, they should listen to you.  Ask a bunch of questions, there are no stupid questions.  Consider moving your cash over without buying any new products at this time.  There are key steps to plan your portfolio.  While TFSAs with online brokers offer flexibility and diversity (see investment choices above) make sure you know what you’re getting into – meaning – some self-directed TFSAs have account minimums and commission fees.  Here are just a few examples:

• TD Direct Investing TFSA, you will pay $9.99 for each Canadian and U.S. equity buy or sell transaction with no minimum balance required.  More details and FAQs here.
• RBC Direct Investing TFSA, you will pay $9.95 for each Canadian or U.S. equity trade with no minimum balance or trading activity required.  There are administration fees if you do not hold at least $15,000 of assets across all RBC Direct Investing accounts.  More details here.
• With Questrade, you can buy any Canadian or U.S.-listed ETFs within your TFSA and pay $0 commission fees.  There’s no minimum holding period and you only pay their standard commission fee when you sell the ETF.  Something to consider.

You can also check out BMO, CIBC, Scotiabank and other companies that offer self-directed TFSAs.  I suggest you call a few companies and compare the answers they tell you – they might be different and you’ll learn more this way.  Alternatively leave a comment to this post or email me if you want.   I will help you where I can or I’ll write another blogpost about your issue.

The TFSA is a gift to all Canadians.  It can be used for emergency funds, short-term savings and much more as part of your long-term retirement plan.  Once you know what you’re saving for, for how long, consider doing some reading about various accounts available to you and what terms and conditions are associated with those accounts to narrow down your options.

Got a question for me?  Add a comment below or contact me and let me know what you’re thinking about.