CIBC Investor’s Edge is the latest brokerage to offer US dollar RRSP accounts. This is good news for cost-conscious ETF investors, as it allows them to save even more money each year by holding US-listed foreign equity ETFs in their RRSP accounts. Opting for this ETF structure in an RRSP account can generally save investors about 0.30% per year in product fees and foreign withholding taxes.
This is all well and good if you already have US dollars available for investment, but what if you only have Canadians dollars?
One of the cheapest ways to convert your unwanted loonies is called Norbert’s gambit. As this strategy can be intimidating for newbie investors, I’ve put together a video tutorial that will make your first gambit a successful one. In the example, I convert about 10,000 Canadian dollars into US dollars within my RRSP account (I’ve also included step-by-step instructions below the video).
Step 1: Buy DLR on the Canadian stock market in your Canadian dollar RRSP account at the current ask price.
The first step is to purchase shares of the Horizons US Dollar Currency ETF (DLR). The fund invests in US dollar cash equivalents, but can be purchased with your Canadian dollars.
In order to determine the number of shares of DLR that you would like to purchase, just take the $10,000 CAD that you would like to convert, subtract the $6.95 trading commission, and divide by the current ask price, which is $13.22 in our example – this equals 755 shares (just round down to the nearest whole share).
Trading Screen: CIBC Investor’s Edge
Source: CIBC Investor’s Edge as of March 31, 2017
Step 2: Call CIBC Investor’s Edge at 1-800-567-3343 and ask them to transfer 755 shares of DLR from the Canadian dollar RRSP account to the US dollar RRSP account.
When I called CIBC, I explained to the trader what I was trying to do, and there were no issues at all. After they had entered the instructions into their system, they offered to take care of the third step for me on the same phone call.
Step 3: Ask the CIBC trader to sell 755 shares of DLR.U in the US dollar RRSP account on the Canadian stock market at the current bid price.
DLR.U is the exact same security as DLR. The only difference is that DLR.U is transacted in US dollars, while DLR is transacted in Canadian dollars.
It is extremely important that the trader sells DLR.U in your US dollar RRSP account, not DLR, so have them confirm the order back to you before proceeding with the trade. Also confirm that you will be paying the $6.95 online trading commission for this trade.
To verify that the trade has been completed successfully, go to the Account Holdings page and click on the Intraday Changes tab. Select the US dollar RRSP account from the drop-down menu and then click on Get Holdings.
You should now see a positive US dollar cash balance, as well as a negative quantity of DLR shares (these will disappear once CIBC processes your transfer request). You are now free to purchase US-listed ETFs with the cash available in your US dollar RRSP account.
Account Holdings: CIBC Investor’s Edge
Source: CIBC Investor’s Edge as of April 5, 2017.