Lisa MacColl is a writer, investor and former compliance consultant in the group retirement and individual wealth management fields. Lisa has written about personal finance for 14 years and currently writes about investing and investment providers for Wealthsimple. Lisa's past work has been published in Canadian Money Saver, Advisor’s Edge, CBC, and CreditCards.ca. She was a nominee for the 2015 Oktoberfest Women of the Year, Professional Category. Lisa holds an M.A. and B.A. from the Wilfrid Laurier University.
Wherever they happen to be located, Tax-Free Savings Accounts (TFSAs) happen to be an incredibly valuable account for anyone looking to save money for a big future purchase, be it a house, car, or, for the well-heeled cartography fan, the $13,000 “world’s most detailed globe.” TFSAs are incredibly versatile in how their balances are invested and funds can easily be withdrawn and replaced. They are particularly attractive because of the tax advantages they offer; all investment gains in TFSA accounts are tax-exempt. The Canadian government introduced TFSAs in 2009 as a way to encourage people to save money. Your trust is important to us. That’s why we always do our best to be fair and provide complete, up-to-date and accurate information about competitors. You should know that RBC may change their product features or fees at any time. To complete your homework, we recommend visiting their site to continue your research.
An Overview of RBC and Its TFSA
RBC, also known as Royal Bank of Canada is about as old and big as banks come in Canada. Its roots go all the way back to 1860, when it started as the Merchants’ Bank of Halifax, which the company describes as “an upstart Maritime bank.” In 1901, after decades of expansion, it changed its name to the more cosmopolitan Royal Bank of Canada and moved its headquarters from Halifax to Montreal. Though it still keeps its official headquarters in Montreal, most of the bank’s corporate operations moved to Toronto in 1976, when the bank completed construction of the towering downtown Royal Bank Plaza. [1] RBC is currently the largest bank in Canada, with a market cap of over $115 billion. [2] The company boasts more than 84,000 employees and 16 million clients in Canada, the U.S. and 34 other countries. [3]
RBC Tax Free Savings Account: Though TFSA stands for Tax-Free Savings Account, this is a bit of a misnomer. By the government’s definition, TFSAs are more like an investment basket in which you can toss any of a number of financial instruments—exchange traded funds, guaranteed investment certificates, stocks, bonds, and yes, actual savings accounts. RBC offers clients all of these options. [4]
RBC Registered Savings Deposit: RBC does offer an actual savings account in which you may put TFSA funds. Currently, they offer 0.05% annual interest for any deposit from $0 up to $999,999,999.99. Registered savings deposits are insured by the CDIC up to $100,000 in the unlikely case of bank default. [5]
RBC Tax-Free GIC: RBC also offers a Guaranteed Income Certificate (GIC) TFSA. Like a savings account, Tax-free GICs are insured by the CDIC up to $100,000 in case of bank default. They offer higher interest rates than savings accounts—RBC currently offers 0.15% interest on a one year non-redeemable GIC. The main drawback of a non-redeemable GIC is that in order to receive this interest rate, you’ll need to commit to not touch your money for a full year. RBC also offers redeemable GICs, which will allow you to withdraw your money, but at a significantly lower interest rate than you would get if you commit to a full one year term. Generally, with GICs, the longer you commit, the higher the interest rate banks will offer, but currently, RBC only offers higher interest rates for non-redeemable GICs of seven years (1.15%) or ten years (1.5%) [6]
RBC Tax-Free Investment Account: RBC also provides TFSAs comprised of stocks, bonds, ETFs, mutual funds or options. You may create your own portfolio of any or all of these things, or you might also allow RBC to invest using one of their “Portfolio Solutions,” a program that offers an array of 9 different portfolios ranging from very conservative to aggressive. These nine portfolios come from two different portfolio families. Their RBC Select Portfolios, introduced in 1986, offers portfolios consisting exclusively of proprietary RBC funds, that is funds run by RBC Global Asset Management (RBC GAM). In 2000, RBC introduced another array of portfolios, RBC Select Choices Portfolios that includes many RBC GAM mutual funds, but with the addition of some funds from other mutual fund companies. [7]
RBC’s conservative funds contain mostly high grade US and Canadian corporate and government bond mutual funds and their aggressive funds contain a mix of mutual funds mostly containing Canadian, American and European stocks. [8,9] These TFSAs come with the risk inherent to all stock and bond investments—possibly losing money.
RBC Tax-Free Savings Account:
Currently, RBC offers 0.05% annual interest rate in their saving account TFSAs. [10] RBC assesses no fees to open or keep a savings account TFSA with them, and their TFSAs require no minimum deposit. RBC will charge $50.00 should you choose to transfer to another institution. [11]
| Fee/Rate Type | Fee/Rate Amount |
|---|---|
| Interest rate on savings account TFSA | 1.0% APR |
| Minimum Balance | $0 |
| Transfer Fee | $50 |
| Human telephone support at no extra cost | Yes |
RBC TAX-FREE GIC
Currently, RBC offers a special rate of 0.15% for their one year non-redeemable GIC TFSA. There is no minimum investment required to open a tax-free GIC, though should you move your money to a different institution, you’ll be assessed a $50 fee. Their posted rates, which we include below, are currently significantly lower than the special rate touted on RBC’s website. [12]
| Length of non-redeemable GIC commitment | Current interest rate as of January 31, 2020 |
|---|---|
| 90 day | 0.15% |
| 180 day | 0.15% |
| 270 day | 0.15% |
| 1 year | 0.15% |
| 1.5 year | 0.35% |
| 2 year | 0.50% |
| 3 year | 0.60% |
| 4 year | 0.80% |
| 5 year | 0.95% |
RBC Investment account:
RBC investment accounts offer various portfolios, all of which contain a mix of mutual funds containing some or all of the following: Canadian stocks, US stocks, international stocks, Canadian bonds and US bonds. The more aggressive the portfolio is, the higher the percentage of stock funds relative to bond funds it will contain. RBC portfolios each have different management expense ratios; the management expense ratios for the portfolio’s include any management fees of its composite mutual funds. Any MER will be deducted from your portfolios returns annually. For instance, if you have a 2% MER, $20.00 of every $1,000 of your entire investment (not just your gains) will be deducted by RBC year in and year out as a fee for managing your money. So if returns look considerably smaller than the market returns at large, it is largely a result of the eroding power of fees. [13-18]
| Portfolio performance as of August 28, 2020 | 1 year | 3 years | 5 years | 10 years | Inception | MER |
|---|---|---|---|---|---|---|
| Select Choices Conservative | 4.50% | 4.40% | 3.30% | 4.80% | 3.90% | 1.95% |
| Select Choices Balanced | 2.80% | 4.30% | 3.80% | 6.10% | 3.80% | 2.16% |
| Select Choices Growth | 3.40% | 5% | 4.40% | 7.20% | 3.50% | 2.36% |
| Select Choices Aggressive Growth | 3.10% | 5.50% | 4.90% | 8.40% | 2.90% | 2.57% |
| Select Very Conservative | 5.90% | 4.60% | 3.50% | 4.30% | 5% | 1.69% |
| Select Conservative | 5.70% | 4.80% | 3.80% | 5.30% | 6.10% | 1.84% |
| Select Balanced | 6% | 5.80% | 4.70% | 6.80% | 6.40% | 1.94% |
| Select Growth | 5.80% | 6.10% | 5% | 7.40% | 6% | 2.04% |
| Select Aggressive | 4.90% | 6.40% | 5.40% | 8.50% | 4.20% | 2.14% |
A humble introduction to Wealthsimple
While we have your attention — we’d like to introduce you to Wealthsimple. We offer smart, simple investing, including TFSAs without the high fees associated with traditional banks and there’s no minimum amount needed to open any of our accounts. Get started with Wealthsimple Invest and we’ll create a diversified portfolio of low-cost ETFs that perfectly match your risk tolerance and investment goals. Our cutting-edge technology and unparalleled customer support comes at a surprisingly low fee.Our expert financial advisors are always available when you need them. They can help plan your financial milestones and answer questions you might have about potential risks or what sort of investment accounts you should have.Investing is just one part of your financial picture. So, we’ve introduced more ways to reach your goals and manage your money. Cash account, commmission-free trading. And features — like automatically investing your spare change— that make it easier to save for your future. That’s because we believe that everyone should have access to the tools they need to make smart financial choices.
What to look out for in a TFSA provider
Where you open your TFSA could mean a difference of thousands of dollars. Even tens or hundreds of them. That’s because different financial institutions charge different investments and fees. Not to mention different levels of smart technology and human advice.
Fees
Management fees can be a mortal enemy of investment growth. Because they often look so minuscule, they’re deceptively destructive. Small fees make a huge difference; one Toronto-based investment advisor showed that a fee of just 2% could decrease investment gains by half over the course of 25 years. And studies regularly demonstrate that fees are directly predictive of returns in a very simple way; the higher the fees, the lower the returns. In light of that rather chilling thought, you might take another look at the chart of portfolio MERs featured above.
Investment choices
As we’ve explained, TFSAs are just accounts in which you might put various kinds of financial investments, including cash, stocks or bonds. A number of factors will dictate how you invest, including your risk tolerance and investment horizon, aka, when you need to access the money. You should research the investment options available to you before you open the account — since RBC, for example, will assess a $50 fee per account should you decide to move elsewhere. If you think you may someday want someday to fill your TFSA with investments that yield a bit more than a savings account, you may want to find a place that offers low fees as well investment choices that allow you access to the stock and bond markets.
Smart Technology:
A lot of pizzas are pretty good, but some rise to the level of dude, this pizza is so good. Automated investing services of the same way. They employ different technologies and algorithms to optimize account performance. Some are smarter than others in that they’ll perform portfolio-supercharging tasks like automatic portfolio rebalancing and tax loss harvesting at no extra charge. Make sure that whichever investment provide you choose offers the most advanced technology available.
Methodology: The information on this page was compiled by Wealthsimple in September 2019. In order to uncover this information, we looked at the RBC website as well as third-party sites. The information collected is provided for educational purposes only, as at the time of publication and is intended for Canadian investors.
Sources
http://www.rbc.com/history/celebrating-our-history/quick-to-the-frontier.html
https://www.rbcroyalbank.com/onlinebanking/rbc_newsletter/pdf/SelectChoices_Winter_2017_E.pdf
https://www.rbcgam.com/en/ca/products/mutual-funds/RBF209/detail/
https://www.rbcgam.com/en/ca/products/mutual-funds/RBF592/detail/
http://www.rbcroyalbank.com/ally/_assets-custom/pdf/tfsa-schedule-of-fees.pdf
https://www.rbcgam.com/en/ca/products/mutual-funds/RBF566/detail/
https://www.rbcgam.com/en/ca/products/mutual-funds/RBF567/detail/
https://www.rbcgam.com/en/ca/products/mutual-funds/RBF461/detail/
https://www.rbcgam.com/en/ca/products/mutual-funds/RBF460/detail/
https://www.rbcgam.com/en/ca/products/mutual-funds/RBF459/detail/
https://www.rbcgam.com/en/ca/products/mutual-funds/RBF592/detail/
Last Updated June 8, 2022
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