Bank Mutual Funds vs XEQT: What a $150,000 Switch Looks Like After Three Years
October 9, 2026
A bank mutual fund with a 2.0% MER costs about $2,000 a year on $100,000. XEQT, with its 0.20% MER as of 2026, costs about $200 on the same money. On a $150,000 portfolio that grows 6% a year before fees (an assumption, not a forecast), three years of that gap leaves the mutual fund investor roughly $8,900 behind. The gap also widens every year after that. Fees leave your account on schedule whether the market is up or down.
The figures below use XEQT’s verified 0.20% MER and a 2.0% mutual fund MER, run year by year. The case study is a composite built from typical balances and fees, not one named client, so treat it as a realistic illustration rather than a testimonial.
What does a 2% bank mutual fund cost compared to XEQT?
On $50,000, a 2.0% MER costs $1,000 a year and XEQT’s 0.20% costs $100. On $100,000 it is $2,000 against $200. On $250,000 it is $5,000 against $500. Across three years with the balance held flat, that is a gap of $2,700, $5,400 and $13,500 respectively. Our breakdown of XEQT’s 0.20% MER shows the same ratio at every balance, which is the point. The mutual fund charges ten times as much, and the dollar amount grows as your account grows.
A 2% MER is not a cherry-picked horror story. Canadian mutual fund MERs have historically sat at 2% or higher, and balanced funds, the kind sold in most bank branches, have often landed in the range of roughly 1.8% to 2.2%. Some bank index funds charge far less, but those are rarely what a branch advisor offers first.
Those flat numbers understate the damage, because the fee dollars never get to compound. On $250,000 earning 6% before fees, the simple three-year fee gap is $13,500. Once you account for the growth those dollars would have earned, the ending balances differ by about $14,900. Fees are a cost you pay twice: once when they leave, and again when the money they would have earned never shows up.
A 1.8 percentage point fee gap does not feel like much in any single year. It feels like a lot when you add up what it did across a decade of savings.
Meet the case study: $150,000 and a branch advisor
Priya is 41 and lives in Toronto. Three years ago she had $150,000 across three accounts, with $90,000 in an RRSP, $40,000 in a TFSA and $20,000 in a non-registered account. All of it sat in her bank’s balanced and growth mutual funds, picked by a friendly branch advisor, at a blended MER of 2.0%. She had never seen a dollar figure for what that cost her.
Now compare her to a twin who moved the same $150,000 into XEQT on day one. Both start with $150,000 and both face the same markets, which we assume return 6% a year before fees. That is a reasonable planning number for a diversified equity portfolio, but it is not a promise, and real returns will be lumpy. No new contributions are added, which keeps the fee effect easy to see.
Right out of the gate, the mutual fund takes about $3,000 (2.0% of $150,000) and XEQT takes about $300. Priya ends the year at roughly $156,000, while her XEQT twin ends at roughly $158,700. The gap is already $2,700, more than a third of a year’s TFSA room, gone before she has noticed a thing.
The fee itself is not a single charge. Inside a 2.0% MER you typically find a management fee, a trailing commission paid to the dealer for as long as you hold the fund, and operating costs and taxes on top. The trailer is the part that surprises people, because it often makes up a substantial share of the total. These are components of the 2.0%, not extras stacked on top of it. Neither fund’s MER includes trading costs inside the fund, so the true cost of both runs a touch higher.
Years two and three: how the fee gap compounds
The following year, Priya’s mutual fund fee is about $3,120, because the fee follows the balance. XEQT’s fee is about $317. By the end of the third year, total fees paid are roughly $9,365 for the mutual fund and $953 for XEQT. That is a fee-only gap of about $8,400. The ending balance gap is larger, around $8,900, because the extra $500 is growth the fee dollars would have earned.
The table shows the balances year by year, as of 2026 fee levels (a 2.0% MER for the mutual fund and XEQT’s 0.20% MER) and an assumed 6% gross return, with no contributions or withdrawals. These are illustrative figures built from those assumptions, not historical fund returns.
| Point in time | Bank mutual fund (4.0% net) | XEQT (5.8% net) | Gap |
|---|---|---|---|
| Start | $150,000 | $150,000 | $0 |
| End of year 1 | $156,000 | $158,700 | $2,700 |
| End of year 2 | $162,240 | $167,905 | $5,665 |
| End of year 3 | $168,730 | $177,643 | $8,913 |
The gap grew by $2,700, then $2,965, then $3,248. It accelerates because the XEQT investor’s larger balance earns a larger return in dollars. Stretch the same logic over decades and the numbers get ugly. The thirty-year illustration in our MER explainer puts the difference near $135,000, on identical contributions and identical gross returns. Three years is the small end of this story.
Real returns will not be a smooth 6%. In a bad year the mutual fund investor loses more than the XEQT investor, because the fee is charged on top of the loss. In a great year both do well, but the mutual fund investor still keeps less. Research suggests most actively managed funds trail their benchmarks over long periods, so the expensive fund is not reliably buying you extra return to offset the fee.
Why doesn’t my bank show me the MER in dollars?
The MER is deducted continuously from the fund’s net asset value, so it never appears as a line item on your statement. You see a unit price that is slightly lower than it would have been, and a return that is quietly smaller than the index. No invoice is issued, so there is nothing to question.
The industry has shifted at the edges. Since 2022, discount brokerages such as TD Direct Investing only sell mutual funds without trailer fees, and regulators banned deferred sales charges on new purchases. But a branch advisor selling you a fund still gets paid through the fund, not through a bill you see. If your money has been in the same funds since before mid-2022, ask whether a deferred sales schedule still applies. Those schedules usually run several years from the purchase date, so check the fund facts before you sell.
Annual fee at $150,000 invested: A 2.0% MER costs about $3,000 a year and XEQT’s 0.20% MER costs about $300 a year, so the starting-balance gap is roughly $2,700 every year before any compounding is counted.
Where tax efficiency changes the picture
Roughly 87% of Priya’s money sits in registered accounts, so fee drag is nearly the whole story. Inside a TFSA, growth is tax-free, so a fee that takes 2% a year comes straight out of money that would have compounded tax-free. Inside an RRSP, the same drag hits tax-deferred growth, and every dollar of lost growth is a dollar that never gets withdrawn later. In both accounts, the cheaper fund simply leaves more of the compounding in your hands.
In her $20,000 non-registered account, taxes matter as well. Mutual funds can distribute capital gains to unitholders when the manager sells positions, and that tax bill arrives even if you never sold a unit. XEQT’s distributions arrive on a T3 slip, and because it holds broad index funds, it typically throws off less trading-driven tax. XEQT does still distribute, mostly income, so a non-registered holder gets a tax slip each year.
On account placement, the RRSP eliminates US dividend withholding on XEQT’s US holdings through the Canada-US tax treaty, while a TFSA or FHSA faces roughly 15% withholding on US dividends. That makes the RRSP the most efficient home for XEQT where you have room, and the TFSA is still an excellent choice for tax-free growth. A mutual fund holding US stocks faces the same withholding, so this is not a reason to stay put. If you are saving for a first home, the FHSA is worth a look too, with its $8,000 annual limit and $40,000 lifetime cap.
What the three-year gap really cost
Priya’s cumulative fee drag is about $8,900 on $150,000. That is more than a full year of TFSA room at $7,000, with nearly $2,000 left over. Put differently, her twin’s XEQT portfolio sits at $177,643 while hers sits at $168,730, so she would need to save or work longer to close that gap.
The honest limit on this comparison is risk. XEQT is 100% equity. If Priya’s bank fund was a 60/40 balanced fund, some of the return difference would reflect holding bonds, not fees. For a fair comparison against a balanced fund, you would pick an all-in-one with bonds, and the XEQT vs VGRO comparison is a good start. The fee argument holds either way, because all-in-one ETFs generally charge roughly 0.18% to 0.27%, a fraction of a 2.0% balanced mutual fund. For a fuller look at what XEQT holds and how it works, see the complete XEQT guide.
The most expensive part of a mutual fund is rarely the fund. It is the years you spend assuming the fee must be buying something.
Do I pay tax when I switch from mutual funds to XEQT?
Not inside an RRSP or TFSA. Selling holdings inside a registered account has no tax consequences and does not use contribution room, as long as the money stays in the account. In a non-registered account, you realize a capital gain or loss when you sell, and 50% of a gain is included in income at your marginal rate.
For Priya’s $20,000 non-registered holding, suppose her adjusted cost base is $16,000, which means a $4,000 gain. Half of that, $2,000, is taxable, and at a 30% marginal rate the tax is about $600. Her fee savings on that slice are about $360 a year (1.8% of $20,000). She recovers the tax in under two years, and the savings continue after that. If you have a large gain, you can sell in stages across tax years, but waiting too long to avoid a tax bill usually costs more in fees than it saves.
For the registered accounts, the practical route is simple. Open an RRSP, TFSA or FHSA at Wealthsimple or Questrade, then ask them to transfer your holdings in kind. Transfers take a couple of weeks, sometimes longer, and some mutual funds cannot move in kind, so you may need to sell first and transfer cash. Many brokerages reimburse transfer fees on larger balances, so ask. Once the cash lands, buy XEQT. Both platforms allow commission-free ETF purchases, though Questrade has historically charged on sales, so check the current schedule. One timing quirk is that a mutual fund sale prices at the end of the day while your ETF purchase can only happen after the cash arrives, so you may be out of the market for a day or so.
Check for any deferred sales charge before you hit sell, because a redemption fee can change the timing but rarely the decision. A typical schedule declines each year, and many funds allow a free redemption allowance each year. Run the numbers, though. At a 2.0% MER, each additional year you wait costs you about 1.8% in extra fees compared with XEQT, which can easily outweigh a declining redemption charge. Sooner is generally better. You can model your own switch with the XEQT growth calculator.
2026 registered account limits: The TFSA limit is $7,000 a year with $109,000 of cumulative room for someone eligible since 2009, the RRSP limit is 18% of prior-year earned income up to $32,490, and the FHSA limit is $8,000 a year with a $40,000 lifetime cap. Moves within these accounts do not trigger tax.
Frequently asked questions
How much do bank mutual funds cost compared to XEQT? A 2.0% MER costs about $2,000 a year on $100,000, while XEQT’s 0.20% MER costs about $200 as of 2026. Over three years with the balance held flat, that is a $5,400 gap on $100,000 before any lost compounding.
Is it worth switching if I have a deferred sales charge? Usually yes. A redemption charge is a one-time cost that declines each year, while a 2.0% MER is charged every year, so waiting rarely saves money. Check your fund facts for the exact schedule and any free redemption allowance.
Will I owe tax if I switch from mutual funds to XEQT? Not in an RRSP, TFSA or FHSA. In a non-registered account you realize a capital gain on sale, with 50% of the gain included in income, so the tax is usually recouped by the fee savings within a couple of years.
Is XEQT comparable to my balanced mutual fund? Not exactly. XEQT is 100% equity, so a 60/40 mutual fund carries less risk. If you want bonds, an all-in-one such as XGRO or VGRO gives you a similar mix for a fraction of the fee.