Good news for the Great White North: OptionsXpress Canada just rolled out no-fee US Dollar RRSP (Registered Retirement Savings Plan) and TFSA accounts (Tax Free Savings Account) to its Canadian customers.
I’m always a fan of giving investors more options, especially when no fees are attached, so this is great news. However, Canadian investors should keep in mind that by investing directly in USD-denominated securities, they are exposing themselves to foreign exchange risk.
If the US economy goes into full-bore recovery mode, the dollar could in fact rise sharply, especially if the Fed begins to raise rates to more reasonable levels. Sooner or later, the helicopters dropping newly-created dollars into the world has to run out of gas. In that scenario, gains in the US dollar could offset gains made in US stocks, options, and other investments.
And just an FYI for non-Canadian readers: RRSP’s and TFSA’s are similar to the Unites States’ tax-advantaged individual retirement accounts (IRAs).
The basic difference between the two is this:
RRSP contributions are tax-deductible while RRSP withdrawals are added to income and taxed at regular rates.
TFSA contributions are not tax-deductible but the contributions and the investment earnings are exempt from tax upon withdrawal.