A Registered Retirement Savings Plan (RRSP) is an investment plan that is registered with the Canadian federal government. RRSPs are often described as being “tax-advantaged.” That means you don’t pay income tax on the amount you are contributing to an RRSP, in the year you earn that contribution. However, you will have to pay income tax when you withdraw money during your retirement. The advantage is built on the assumption that your income is higher now than it will be during retirement. If you plan things right, you will be in a lower tax bracket in retirement, meaning that you pay less tax on your withdrawals than you saved initially by stashing your money inside an RRSP.
You can open an RRSP and contribute income up until the age of 71, at which point it has to become a Registered Retirement Income Fund (RRIF) and you begin to withdraw the money as taxable income.
The best RRSP savings accounts and investments accounts in Canada for 2020
Rates current as of February 21, 2020
Best for risk-averse investors – MAXA Financial RRSP Savings
Offering 2.40% interest, paid out monthly, this RRSP savings account out-earns inflation (which was 2.01% in 2019), and all deposits are protected by the Deposit Guarantee Corporation of Manitoba (DGCM), with no limit. There’s no minimum balance and no monthly maintenance fee.
Best for risk-averse investors – Peoples Trust 1-year Registered GIC
GICs have a reputation for being boring, but if keeping your principal safe is a key concern, this RRSP-compatible 1-year GIC offers a 2.75% return, which is higher than most savings accounts, and up to $100,000 per account is protected by the Canada Deposit Insurance Corporation (CDIC).
Whether you’re just starting out, or want a “set it and forget it” component to complement your other investments, a robo-advisor like Questwealth Portfolios* offers an all-in-one solution that is tailored to your risk tolerance and objectives through an online questionnaire you’re given when you sign up. Questwealth’s fees are among the lowest in the business, ranging from 0.2% to 0.25%, depending on the size of your portfolio. Bonus: new clients have fees waived for the first year on their first $10,000 invested. Note that because the portfolios are built from exchange-traded funds (ETFs), your principal is not protected. The minimum account size is $1,000.
Like Questwealth Portfolios, Wealthsimple is a robo-advisor that matches you to a low-cost portfolio of ETFs for a one-stop RRSP experience. Wealthsimple’s fees are higher, ranging from 0.4% to 0.5%, depending on how much you have invested, but you do also get fees on the first $10,000 waived for the first year. There’s no minimum account size.
Experienced, hands-on RRSP investors enjoy using an online brokerage like Questrade for its low fees and the ability to handle trades on your laptop or even smartphone. Questrade boasts the lowest fees, with no commission charged on ETF purchases, and stock purchase and trading commission at $4.95 to $9.95 per each transaction. Questrade* placed first in MoneySense’s most recent Best Online Brokers ranking.
What is a Registered Retirement Savings Account (RRSP)?
An RRSP is retirement savings plan that you open at a bank or other financial institution. You can open an account in-person, if that service is offered by your chosen institution, or from the comfort of your laptop, if you choose to open a plan online. RRSPs are registered by the federal government of Canada, which specifies the maximum amount each Canadian can contribute up to it up each year. There are two big benefits to saving or investing inside an RRSP: One, your money is allowed to grow tax-free until you need to withdraw it; and, two, get an immediate break on the income tax you would otherwise pay on the amount you contribute each year, up to your annual limit.
What are the types of RRSPs available?
You can use an RRSP to save money for your own retirement, as well as your spouse’s. If your employer offers a group RRSP and will match a portion of your contributions, sign up for it: your employer’s contribution alone gives you a no-risk return on your investment that would be tough to match anywhere.
Individual RRSP
The government sets a contribution limit for RRSPs each year. You can contribute a total of 18% of your income or a maximum of $27,830 (the limit for 2020), whichever is less. If you pay into an employer-sponsored pension plan, then those contributions are also deducted from your contribution limit. If you contribute less than your contribution limit for a given year, then you are also able to carry over any unused contribution to future years.
Spousal RRSP
In addition to contributing to an RRSP for yourself, you can also contribute to your spouse’s RRSP. Contributions to a spousal RRSP still count toward your own contribution limit, but this can be a smart way to split your income for tax purposes in retirement. Any taxable earnings from your RRSPs will be split between the two spouses in retirement, which can help lower your tax bracket.
Group RRSPs (GRRSPs)
Group Registered Retirement Savings Plans (GRRSPs) are essentially RRSPs that are set up by employers. These can come with benefits such as contribution matching (sometimes referred to as a “top up”) and automatic payroll deductions, so your contributions are handled for you on an ongoing basis. If a GRRSP with contribution matching is available through your employer, this should be the first place you invest for your retirement. Note that amounts you contribute to a GRRSP count against your annual RRSP limit.
What kinds of investments can I hold inside my RRSP?
There’s a wide variety of investments you can hold inside an RRSP—and you don’t have to stick to just one, or even two. Depending on your investment horizon (the amount of time until you need to draw money from your RRSP in retirement), risk tolerance and other personal factors, using a mix of low-risk savings accounts and GICs for safety, along with perhaps some exchange-traded funds and even individual stocks for growth, can offer diversification.
Note that not every kind of investment can be held in an RRSP. Investing in businesses in which you hold an interest of 10% or higher, precious metals that are not gold or silver, commodity futures, private holding companies or private foreign corporations, your own debt, and personal property, are all non-qualified investments.
Savings accounts
The most straightforward way to save your money is to put it in a savings account. While this will yield a lower interest than other forms of investment, it is also a no-risk decision. What’s more, you can always decide to take the accessible cash you have in your RRSP and use it to purchase other investments within the same RRSP accounts down the road. So, if you are still trying to sort out which investments are best for you, you can walk into any major bank or financial institution tomorrow and start deferring your taxable income right away.
Guaranteed Investment Certificates (GICs)
Guaranteed Investment Certificates (GICs) are another very low-risk investment that you can set up within an RRSP at any bank or financial institution. GICs offer a guaranteed rate of investment on predetermined terms. You could buy a 1-year GIC that would pay, let’s say, a 1.0% rate, or a 5-year GIC that would pay 2.0%. One main drawback is that interest earned on GICs is usually subject to tax rates that can be as high as 50%. When GICs are held within an RRSP, however, they are sheltered from those taxes.
Mutual funds
Professionally managed mutual funds are a popular choice offered at major banks and financial institutions for RRSP investments. Mutual funds are made from a variety of investments that are bundled together in one fund. This makes it easier for your investments to be diversified and, therefore, offer less risk than when compared with investing directly in the stock market. Professionally managed mutual funds do, however, incur management fees that can be as high as 2.0% per year.
Exchange-Traded Funds (ETFs)
Exchange-Traded Funds (ETFs) are relatively new to the investment scene in Canada, but are an excellent choice for people interested in exploring a self-directed RRSP that gives you more control over your investments. ETFs are collections of stocks and bonds that are designed to track the stock market over time. So, as the market goes up over time, so does your investment. When the market dips, however, you will also lose money. ETFs are a good option for those who can tolerate some risk and are not considering withdrawing money from their RRSPs in the short term. Robo-advisors that calibrate your investments with a computer algorithm rather than a professional advisor are great options for saving on management fees with ETFs. Consider firms such as Questwealth*, BMO’s Smartfolio and Wealthsimple, among others.
Stocks and bonds
Self-directed investors who want to buy individual stocks and bonds can certainly hold those investments in an RRSP as well. Stocks, in particular, tend to be more volatile investments and should be geared toward people with a higher tolerance for risk who are comfortable taking a long view of maximizing their investment. You can either work with a conventional broker or use an online broker to manage your investments on your own.
What are some ways to leverage my RRSP savings without paying a penalty?
In addition to giving you a tax-deferred place to save towards your retirement goals without, an RRSP is a tool you can tap into to help with two major life expenses: buying your first home; and pursing further education. In both cases you can withdraw a portion of your RRSP funds without having to pay tax or penalties, as long as you adhere to a specified repayment plan.
Home Buyers’ Plan (HBP)
The Home Buyers’ Plan (HBP) is a program that allows first-time home buyers to leverage their tax-deductible RRSP savings for to use as a downpayment on their home. It essentially allows home buyers to borrow up to $35,000 per person from their RRSPs and then repay that money back into their RRSPs over a 15-year period. Note that any failure to meet the scheduled repayments in any given year will result in having the unpaid amount taxed at your top rate.
Lifelong Learning Plan (LLP)
The Lifelong Learning Plan (LLP) is a similar program that allows RRSP holders to withdraw money for the purpose of pursuing additional education. You can withdraw up to $10,000 per year and up to a total of $20,000 and are given 10 years to repay the full amount, in the same way HBP withdrawals are repaid. The LLP can be used to pay for your own education or your spouse’s, but not your children’s. Once it is repaid in full, you are free to use the program again.
Should I invest in a TFSA instead?
Canadians can also choose to invest their savings in Tax-Free Savings Accounts (TFSAs). There are circumstances that would make a TFSA (which does not defer tax on contributions and instead offers tax-free growth and withdrawals at any time) a smarter choice. If you think you might need the money before your retirement, a TFSA will allow you to withdraw as much as you want, whenever you want. The flipside of that equation, however, is that easier access to your money might derail your retirement planning in the long run.
Also, remember that the tax advantage of an RRSP* relies on the assumption that you will be in a lower tax bracket when withdrawing the money in retirement than when you are contributing to it. So, if you earn less than $50,000, it makes more sense from a tax perspective to invest the money in a TFSA from a tax perspective. If you earn more than $50,000, and are investing solely in your retirement (and perhaps saving for a home or planning more education), an RRSP makes more sense.
Or, if you have enough money to spread around, consider investing in both!
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
