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An overlooked risk of DIY investing is being tormented by fees.

Online brokerage firms aren't crazy about small accounts, and they discourage them by applying inactivity or administration fees to them. How much money do you need to avoid these costs? The answer is anywhere from $5,000 to $25,000, depending on the broker and the type of account.

A few firms – Credential Direct, RBC Direct Investing and Virtual Brokers are examples – have adopted a blessedly simple fee schedule that applies to all accounts. If you don't meet various requirements, you pay a quarterly fee of around $25. At VB, you have to maintain at least $5,000 with the firm to avoid the fee, or make at least one trade at a minimum commission of $6.49 per quarter. You can also avoid the fees if you're under 26 years of age and if your account is a registered education savings plan. VB specifies that its $5,000 threshold applies to combined total assets at the firm, which is pretty standard.

Both Credential and RBC eliminate account fees if you have $15,000 in assets or meet other criteria. Both, for example, exempt you from these fees if you commit to automatic monthly contributions of at least $100.

Other firms apply fees differently for various types of accounts. There's often an annual admin fees for registered retirement savings plans and registered retirement income funds, and it can run as high as $100 annually for accounts with assets of less than $15,000 to $25,000. TFSAs typically have no admin fees, but account inactivity fees may apply unless you reach a certain threshold of assets or make a few trades.

If you're investing more than $25,000, you generally won't have to worry about any of these fees. It's a different story if you set up small accounts where you do little or no trading or investing. A reader contacted me recently about an account he set up to teach his young son about the stock market. Minimal trading was done in this tiny account, and that resulted in several quarterly $25 fees being applied.

Trading commissions for stocks and exchange-traded funds are low enough at some firms that it can be quite economical to run a small account. Watch the inactivity and admin fees, though. At $5,000, fees of $100 per year reduce returns by 2 percentage points and thereby negate the benefits of DIY investing.

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 18/03/24 4:20pm EDT.

SymbolName% changeLast
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Royal Bank of Canada
-0.07%99.27
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Royal Bank of Canada
-0.22%134.34

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