The Secret that Scotiabank and CIBC Don’t Want You to Know

How to avoid unnecessary trading fees.

| More on:
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

When investing, it is very important to keep track of fees. Because if you don’t, they can eat into your returns without you realizing it. The banks make a lot of money every year off of fees, much of which comes from careless investors.

So the banks have plenty of incentive to keep their fees out of plain view. And when trading stocks, these fees can make a dramatic difference in returns.

Not that long ago, all of the banks charged roughly $30 per trade unless you had a big balance or you were a very active trader. Then a lot of smaller websites started popping up, offering trades for as little as $5 to everyone. Slowly but surely, the banks have lowered their fees as well. But two banks have barely budged: Bank of Nova Scotia (TSX: BNS)(NYSE: BNS) and CIBC (TSX: CM)(NYSE: CM).

While the other four big banks offer $10 trades to everyone, Bank of Nova Scotia charges up to $25 per trade, and CIBC up to $28. Only when the account balance exceeds $50,000 or there are numerous trades in a quarter, do these banks offer $10 trades.

So what would these fees do to your returns? Let’s consider a hypothetical example.

Suppose you have two investors: Mike and John. Each starts with $25,000 to invest and wants to hold 25 stocks. Each of them holds on to a company’s stock for an average of two years. And the stocks return 8% per year. The only difference is that Mike invests with RBC (TSX: RY)(NYSE: RY) and John with CIBC. How much money will each have after 10 years?

Investor Value in 10 Years Real Return
Mike (RBC) $49,971 7.17%
John (CIBC) $42,711 5.5%

You can see that Mike ends up with $7,000 more than John after 10 years, even though they have the exact same strategy and stock-picking ability. Mike also returns 1.67 percentage points more than John every year.

Foolish bottom line

This is a fairly simplified example, but it demonstrates the effect that fees can have on your portfolio. In fact fees can eat into your portfolio’s returns even more than a few lousy stock picks. But this is not something that CIBC or Scotiabank will tell you up front. Unless you can get their reduced fees, it’s best to avoid these services altogether.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

Hands holding trophy cup on sky background

3 Growth Stocks That Could Be Huge Winners in the Next Decade and Beyond

Here are three top TSX growth stocks that may be worth a look, given the significant valuation declines these stocks…

Read more »

edit Back view of hugging couple standing with real estate agent in front of house for sale
Dividend Stocks

Why Real Estate Stocks Are a No-Brainer Addition to Your Portfolio

Real estate stocks, especially REITs, offer some distinct advantages over other types of stocks, making them must-have additions to most…

Read more »

Man data analyze
Stocks for Beginners

Beginners: 2 Market-Beating Stocks Just Getting Started

Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM) and Constellation Software (TSX:CSU) are proven market beaters that could continue their ways.

Read more »

oil and natural gas
Energy Stocks

Small OPEC+ Oil-Output Hike: Buy More Energy Stocks?

Energy stocks could soar higher, because oil markets will remain tight due to the small production increase by OPEC+.

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

3 Top TSX Dividend Stocks to Buy for Monthly Passive Income

Top TSX stocks with monthly dividends now trade at cheap prices for investors seeking passive income.

Read more »

edit Person using calculator next to charts and graphs

Where to Invest $500 in the TSX Right Now

Long-term investors can look to buy stocks, including Suncor Energy and Shopify, as they are poised to outpace the broader…

Read more »

Canadian Dollars
Dividend Stocks

Create Free Passive Income and Turn it Into Thousands With 1 TSX Stock

If you can't afford to invest, you can certainly create passive income another way and use that to invest in…

Read more »

falling red arrow and lifting

2 Oversold TSX Stocks That Should Bounce Back

Stocks that are oversold without an external catalyst like a market crash or a weak sector might be risky buys,…

Read more »