While most people thinking of getting a TFSA will just do so through their financial institution, there are some good reasons for managing it yourself. First off, most banks will put your money in funds with minimal interest rates, and in the meantime use your money for their own purposes with little benefit to you. Sounds like a regular savings account at that point!
Additionally, some types of investments you are interested in may not be available through your bank. However if you choose a self-directed TFSA, then you can manage your own investment portfolio with an investment dealer/broker, including those types of investments not available to those with a regular bank’s TFSA. This includes investments such as segregated mutual funds, publicly traded shares, small business shares, mortgages, exchange traded funds, stocks, royalty units, and deposit receipts.
DIY TFSA tips
Opening a self-directed TFSA does require some financial knowledge on your part, since by definition you are making the investment choices yourself:
- Make sure you have a plan and stick to it, and be prepared to ride out short-term bumps in the road!
- Diversify to lessen risk.
- Read up on your prospective funds’ annual reports and figure out how they would fit into your portfolio.
- And remember, just because you have a self-directed TFSA doesn’t mean you can’t seek professional help – there are independent professionals out there who will help you review your investment plan and keep you on track.
Self-directed TFSA brokerage firms
Some financial institutions actually have self-directed TFSA brokerage brands such as BMO Investor Line, RBC Direct Investing, CIBC Investor’s Edge, TD Direct Investing, or Scotia iTrade. As well there are more independent firms like Questrade or Virtual Brokers. These firms will allow you more flexibility and diversity with which types of funds you want to invest in and are overall a better option for those looking to maximize their TFSA potential.
Fees in a self-directed TFSA
Of course there are fees associated with having a self-directed TFSA, so you want to choose a brokerage firm that works for your personal situation. Most firms do not have any initial setup fees but do have other fees and possibly require a minimum contribution to open the account in the first place.
Make sure to ask about annual maintenance fees (free to $50), transfer fees from one institution to another ($125-150), commissions for each investment ($5-30), paper account statement fees (opt for free online reviewing!) and closing fees (free to $135). These can add up and eat into your investment profits otherwise, so make sure you have the right mix of low- and high-return investments to overcome these fees.