If you’re starting DIY investing, one of your first steps will be to open an online investing account. In many cases, opening an online investing account is similar to opening any other kind of bank account. Find out more.
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What kinds of investing accounts can you choose from?
There are different kinds of online investing account options. The type you open depends on your investing goals, and whether you want an account that keeps your investments tax-sheltered. Many investing accounts are held with an online brokerage — a company, corporation, or other organization that buys and sells investments such as stocks or bonds — but several larger banks also offer online investing accounts through their brokerages.
There are three types of brokerage accounts:
- Tax-sheltered cash accounts: In Canada, there are several types of registered, tax-sheltered investing accounts, including the Tax-Free Savings Account, Registered Retirement Savings Plan, and the First Home Savings Account. These are cash accounts, which means you use funds you already have available. For many people, one of these accounts will be the first investing account they open. These accounts are designed to help you save or invest for specific goals and they can hold investments as well as savings. Because they are tax-sheltered, your investments grow tax free while they are in the account. Contribution and withdrawal rules vary depending on the type of account.
- Non-registered cash accounts: This is the most common type of investing account. Like all cash accounts, you use funds you already have available to invest in them, rather than borrowing to invest. Non-registered investing accounts can be the right choice for investors who have maxed out their registered account contribution room, or investors who want to invest in an account without the contribution and withdrawal rules registered accounts have. They’re not tax-sheltered, so you’ll need to declare your investment earnings as income.
- Margin accounts: A margin account is a type of non-registered investment account that lets you borrow funds from your brokerage to invest. Your brokerage uses the assets in your account as collateral for the loan and you pay interest on the amount you borrow. Experienced investors with a higher risk tolerance may opt for a margin account in order to increase their buying power and take advantage of market opportunities. However, a margin account is risky and can also amplify losses if the investment performs poorly. You could lose more than just your initial investment and end up owing money to your brokerage.
All of these types of accounts can hold different kinds of investments, such as stocks, bonds, mutual funds, or exchange-traded funds (ETFs). Each account type may have restrictions against other investment types, so it’s important to check this before opening the account. For example, crypto assets cannot be held in a TFSA.
If you are investing in a non-registered account, then any money you earn on your investments will be considered income, and you may owe tax. Registered accounts, however, are tax-sheltered. Learn more about investors and tax.
Why open an online investing account?
There are several common reasons investors may open an online investing account:
- Potential for lower fees: Fees may be lower when you invest online compared to working with an advisor in person. This depends on a few factors, including the brokerage, the type of account, and how often you make trades. Keep in mind that the more frequently you make trades, the more your fees are likely to add up. Learn more about the types of fees and costs that are involved in investing.
- Lower minimum account balance: Full-service brokerage accounts often have high minimum account balances. If you’re a new DIY investor you can typically start investing with small amounts online without being required to hold a minimum amount to start. Check the account terms and conditions before you start.
- Learning more about investing: Many DIY investors like investing on their own as a way of learning new skills. Many online trading platforms have educational resources and tools to help you learn how to navigate them, and how to make trades, do research to learn more about markets and strategy, and track performance.
Interested in online trading? The Get Smarter About Trading simulator exposes you to gamification techniques that can influence your investing behaviour — often in ways that are not in your best interest. It gives you the chance to participate in a virtual stock market and practice online trading — without risking real money.
What to consider before opening an online investing account
Before you open an online investing account, you’ll need to make sure you choose the right platform, brokerage, and product for you. This means knowing how much you can comfortably invest, having clear goals, and knowing your risk tolerance. Learn more about these initial steps to DIY investing.
Choosing a type of investing account will be easier if you have clarified these aspects of your investing approach. For example, if you aren’t comfortable taking on a high level of risk or would struggle to pay off additional debts, then a margin account may not be the right choice for you. If you’re just getting started with self-directed investing, a cash account may be a better fit, such as a tax-sheltered account.
What are the steps to open an online investing account?
The process of applying for and funding the account may take just minutes of your time. Here are the general steps to opening an account:
1. Choose the type of account you’ll open:
- Registered tax-sheltered accounts – such as TFSAs or RRSPs.
- Non-registered cash accounts – you invest money you already have and the account does not have contribution or withdrawal rules.
- Non-registered margin accounts – you can borrow money from the brokerage in order to invest.
2. Choose a brokerage platform
There are many online brokerage platforms available. A simple online search will reveal many choices. Set aside some time to review the options available before choosing. As you review, remember your investing needs and consider these questions:
- Is the platform registered? Always check before you invest. Make sure that any company or advisor you work with is registered to sell the investments or the services it is advertising. If they’re not registered they are not authorized to conduct that business in Ontario and, this could be a sign of investment fraud.
- What are the fees? Make sure you know what the fees are. Some online accounts may not charge commission fees on trades. In some cases, there may be charges for making a trade (usually called “commissions”) or for opening or keeping an account.
- What features does the platform have? Consider whether the platform is easy to navigate, and whether it includes any tutorials or practice tools, educational resources, tools to help you make investment decisions, or performance-tracking features.
- What level of customer service or support does the brokerage provide? Think about your needs and how you’d like to receive support. For example, can you speak to a real person when you need help or have questions?
- What kinds of investment options are on offer? Do your homework to learn what types of assets you will be able to invest in. For example, there are restrictions on the type of accounts that can hold crypto assets.
If you’re unable to find answers to these questions based on the information available on the site, be cautious.
3. Fill out an application form and open an account
Some websites have video tutorials to help walk you through the online application process. You’ll need to provide your personal and financial information, identification, and answer questions about your investment goals.
To open an online investing account in Canada you need to be a Canadian citizen, resident, or have a valid Canadian visa. You also need to meet the minimum age requirement; in Ontario it’s 18 years old. You can expect to be asked to provide the following information:
- Personal information:
- Legal name
- Contact information including address, email and phone number
- Social Insurance Number (SIN)
- Citizenship information
- Banking information:
- Name(s) on the bank account
- Account type
- Bank name
- Bank account number
Your banking information will allow you to make payments and withdrawals into and out of your investing account. Your personal information is required so that your account activity can be accurately reported as income for tax purposes.
Learn more about the types of questions you may need to answer when opening an account with an advisor or on your own. Also consider whether working with an advisor or DIY investing is right for you.
4. Get familiar with the platform and start investing
Before you start actively buying and trading, take the time to learn how to use the platform. Take advantage of video tutorials, demos, and practice or simulation tools.
To get started, you’ll need to put money in your account. In most cases, you’ll be able to transfer funds directly from your bank account. Then, you can start buying and selling.
Depending on the platform you opted for, you might have access to tracking and analysis tools to help you monitor and evaluate the performance of your investments.
5. Plan to monitor your progress
Investing isn’t just about putting money in your accounts, it’s also about tracking your progress. If you’re a DIY investor, it’s valuable to set aside time each week or month to check your investments, and do any research as needed.
Monitor your investment accounts includes:
- Checking confirmation slips – for accurate trade information and awareness of fees.
- Reviewing your account statements – for recent account activity as well as any fees or commissions. Learn more about reviewing your statements.
- Checking your investing progress against an index – to see how your progress compares to that of the broader market.
In Canada, registered accounts such as TFSAs and RRSPs may not be used to hold crypto assets. If you are planning to invest in crypto assets this will require a type of non-registered account. Also, unlike other types of investments such as bonds and stocks, or GICs crypto assets are not eligible for CIPF coverage, which protects securities in the event that the firm holding them becomes insolvent. Learn more about CIPF coverage.
Summary
Investing online involves opening a type of investing account with a brokerage. Before you start investing, consider the steps involved.
- An online investing account lets DIY investors build their own investment portfolios.
- Know what level of risk you’re comfortable with before choosing an account.
- There are three types of online investing accounts: Registered tax-sheltered accounts, non-registered cash accounts, and non-registered margin accounts.
- When you open an online investing account, you’ll be asked for personal information and banking information to set up the account.
- Once your account is open, set aside time to continue learning how the platform works and to check your progress.
