Hidden Costs to Watch For at your Financial Institution


FX spread charges

When you exchange money, such as from Canadian to US dollars, there is the exchange rate (I.e. how many Canadian dollars to buy one US dollar?), but there is also a spread that financial institutions charge on doing the exchange for you. We have seen instances where charges have been 6, 7 and even 8%! At MacDougall Investment Counsel we offer extremely competitive rates, typically between 1-2%. Make sure you find out the spread the institution is charging, and don’t get it confused with the exchange rate!

Mutual fund and ETF trailers and fees

When you hold mutual funds or ETFs in an account without fees, you may think you aren’t paying any. Wrong! Mutual funds and many ETFs have fees called trailers that are being taken behind the scenes on top of their base management/structuring fees. These trailers are often about 1% on top of the other fees. Don’t be fooled. Institutions are always getting paid in one way or another.

Trade costs

Some accounts are set up as “transactional”, where you pay a price for every trade. Make sure you know if your account is set up this way, and what the cost per trade is.

Overdraft costs

An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. A good solution is to not spend more than you have, but it is worth understanding the penalty if it does happen. Consider overdraft protection if you frequently are being penalized. But the best solution is to avoid using your overdraft.

Withdrawal from Savings accounts at banks

You may be penalized for withdrawing from your savings account. For instance I realized after the fact, that my bank was penalizing me $2.00 for every withdrawal I made. 

Transfer costs

If you are transferring your account to another institution, be aware that your current institution will most likely charge you a transfer out cost. Typically the firm you are transferring to will cover this charge, but make sure so you aren’t out of pocket. 

Registered plan costs

Most firms charge you for your “registered plans”, aka RRSPs, TFSAs etc. Often times if you meet the threshold for account size the firm will waive this fee. Make sure you know the charges and thresholds. It typically “pays” to be a good saver, as you have more bargaining power the bigger your account size. 

US dollar investments in registered plans

If you buy US dollar investments, open a US registered account. Some firms don’t offer US registered accounts because every buy and sell can trigger a FX fee, which is a profit engine for the firms that don’t offer US dollar accounts.

Cost to get out of your mortgage

A very large number of Canadians have to exit their mortgages prior to the mortgage maturing. The penalties can be huge. We highly recommend using a mortgage broker that makes these fees transparent. It pays to research and understand your mortgage. Check out this article for a further read on penalties for exiting your mortgage early. 

DSC fees on mutual funds

DSC stands for Deferred Sales Charge, and is a back-end fee that is charged to a mutual fund investor if they redeem their investment prior to a set amount of time, typically about seven years. These fees are no longer allowed in the US or Australia. Why hasn’t Canada changed the rules also? Many advisors still blatantly use DSC funds and most clients are unaware of the tremendous cost to get out of their investments until it is too late. Read more on DSCs here.