If you've been following along with my posts, you know that most are how-to articles or guides. As much as I love those formats, this one is going to be a little different. Today we'll be diving into an interesting situation I was recently in. This situation actually lost me $170 and I'm writing this post as a reminder to myself never to make the same mistake again, and also to help you as readers not to lose your own money. This is a story of how I lost my money to the bank.
Basics of a TFSA
Before we dive in, you'll need to understand what a TFSA is. If you already have a good grasp on what it is, feel free to skip this section.
Put simply, a TFSA is an account you have with a financial institution which you can't be taxed in (it literally stands for Tax Free Savings Account). For example, if you had $1000 in a normal account and invested it into stocks and made $200, you would need to pay tax on those $200. If you had invested using a TFSA account, nobody can put their hands on your $200. It is untaxable.
A few things to note about TFSAs:
- You can only put in about $6000 every year
- You can open one up when you turn 18
- A lot of financial institutions offer TFSAs
On top of these, an important thing to know is that every year you can take out money from your TFSA. The money you take out, however, will not be added back to your contribution room until the next year.
Basically, if I put in $6000 right now, then take it out immediately, I can't put it in again without penalties. For the rest of the year my contribution room is $0, but then at the start of next year it becomes $12000: the $6000 from next year plus the $6000 from the year before.
Summarized in a sentence: TFSAs are great accounts to invest with because they can't be taxed on so even if you make a bajillion dollars, the government can't take any of it.
The Story
Being the eager individual that I am, I opened up a TFSA with my bank (TD) as soon as I turned 18 years old. This was earlier in the year and I deposited around $1000 at first but didn't actually invest in anything. Staying out of the market was arguably a mistake in and of itself but my “first” mistake was rushing in without fully exploring my options.
When you buy a stock, banks and financial institutions usually charge a commission. A commission is basically money paid to the bank as a service fee for them buying stocks for you. These range from bank to bank and usually range from $5-$10 per transaction. Now, I didn't know this before opening a TFSA account with TD and soon found out that TD charges $10 per transaction.
That might not seem like a lot, but remember, I only had $1000 in my account. I like to diversify my stocks so I wouldn't buy 1 stock all at once. Assuming that I pick out 5 different companies that I like and buy their stocks, that would be $50 on the buy and $50 on the sell… that's $100… 10% of my total portfolio!
So I didn't buy any stocks with TD for the whole year.
Then, along comes December and I find out about this OTHER financial institution called WealthSimple. They boasted $0 commissions. So naturally I wanted to switch over. I filled out the forms and requested a transfer, excited that now I could buy and sell stocks all I wanted without having to pay fees.
The day comes when the transfer is supposed to come through. I log into my WeathSimple account and click the “TFSA” account button anddd…. I see $830.
My Futile Attempts to Recover the Money
As my initial excitement wore off, I realized I was missing $170. I thought “no biggie… it's probably in transit somewhere… it'll come.” I was wrong.
First I went to a local TD branch to ask what had happened. They said that TD Investing had charged a $150 fee for transferring out of their TFSA. Then I called WealthSimple. They said that nothing could be done on their end. Then I called TD Investing and the conversation went something like this:
“Hey just wondering why there's a $170 charge on my account?”
“Oh yeah that's the transfer fee out of TD; it's for selling all your stocks and moving the money over to another financial institution's account.”
“But… I had all my money in cash and never invested with it.”
“Ahh well it's just how it is.”
“Well can I stop the transaction?”
“Nope.. it's done.”
“Can I get reimbursed for the transfer fee?”
“Haha no that money is gone.“
“… wait but I was charged $170. Where did that other $20 come from?”
“Oh that's HST tax on the $150… duh.”
“…”
Several more phone calls could not help. Reddit could not help. My two financial advisor parents could not help. I lost money to the bank forever.
Lessons and Takeaways
There are two big lessons that I learned from this experience.
- Check the fees on stuff before you make transactions
- Think of creative ways to solve your problems
I realize now that the best thing I could have done was to take the time to really understand all the fees involved with a bank account. My advice to you is, even if your bank says no-fees, check the crap out of it. Go online and do research. Go on Reddit and ask “(insert bank name) fees.” Ask people about the fees who have done what you want to do. When most people think fees, they think tiny amounts of money but no matter the amount, definitely figure out where your money is going before making any transactions.
Second lesson is to think creatively about problems. I won't get into the technicalities of it all but basically, if I had just waited until December 31, I could have saved all $170. I could have taken the money out on December 31 and put it back in on January 1st, without paying any transfer fees. It's amazing what a little problem solving and patience can do for you.
Be Safe Out There
That's it for today. I just wanted to share some of my experiences so that hopefully you don't make the same mistakes. I lost money to the bank but you don't have to. For the most part, people in the finance world (who I've interacted with) are friendly and kind, but do keep your guard up. Normally I give a call to action, but this post it's going to almost be the opposite. Instead of telling you to go out there right now and take action, I am advising you to do your research before making any decisions. First research all the costs associated with what you want to do. Then, think about if there is another creative and cheaper way to do what you want to do. Only then should you make a financial decision. Stay safe out there!
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Thanks for reading about how I lost money to the bank! Hope you learned something from it and won't make the same mistakes I did. To learn more about financial freedom, head over to this post here. For more about me, head over to this link here. Finally, if you want to get exclusive updates and tips, drop your email in the “get updates” box (might have to scroll up a bit)! Let me know your thoughts and suggestions in the comments!
Jeff is a current Harvard student and author of the blog Financial Pupil who is passionate about learning, living, and sharing all things personal finance-related. He has experience working in the financial industry and enjoys the pursuit of financial freedom. Outside of blogging, he loves to cook, read, and golf in his spare time.