Savings and Investment Options

Question 1

What is a savings account?

Answer 1

Deposit various amounts of money over time
A minimum balance may be required to avoid service charges
Money may be withdrawn at any time
Interest is paid over time
LOW RISK
LOW RETURN

Question 2

What is a Guaranteed Investment Certificate (G.I.C.)?

Answer 2

Deposit a fixed sum of money for a specific period of time at a fixed rate of interest
Usually, an amount greater than $500-$1000 is required to open this type of investment
G.I.C are usually “locked in” and can NOT be redeemed early (non-cashable GICs)
G.I.C.s that are redeemable early have a lower interest rate
LOW RISK
LOW RETURN

Question 3

What is a Registered Retirement Savings Plan (R.R.S.P)?

Answer 3

Designed to help people save for retirement
Yearly contributions to your RRSP are deducted from your income, reducing your current tax payable
The contributions can be invested in GICs, bonds, stocks, etc. and earn a return.
Tax must be paid when money is withdrawn from the RRSP, at which time less tax will be paid as a result of your lower tax bracket
There is a maximum contribution allowed each year which depends on your income or the maximum allowable amount
Home Buyers Plan
LOW RISK
LOW RETURN

Question 4

What is a Registered Education Savings Plan?

Answer 4

Designed to help finance post-secondary education
Maximum contribution of $4000 per year (lifetime max of $42,000)
The Canada Education Savings Grant (CESG) is a grant from the Government of Canada paid directly into a beneficiary’s RESP until the age of 17. It adds 20% to the first $2,000 in contributions made into an RESP.
Therefore, the CESG can be as much as $400 each year and over the years could amount to a total of $7,200.
The contributions can be invested in GICs, bonds, stocks, etc. and earn a return which can grow tax-free until withdrawal
LOW RISK
LOW RETURN
Given that students have very low income, they are required to pay little to no tax when the money is withdrawn
There is no tax benefit to the person making the contribution
Once the beneficiary is enrolled in a post-secondary institution, the accumulated balance in the RESP is paid out in Educational Assistance Payments (EAP) over time
If the beneficiary does not attend a post-secondary institution, they may:
Designate another beneficiary
Withdraw funds – CESG to be returned to gov’t
Donate funds to an educational institution
Transfer to a RRSP

Question 5

What is a Tax-Free Savings Account (TFSA)?

Answer 5

Tax-sheltered savings ( as of Jan. 2009)
Any Canadian over 18 years and older is eligible to open this type of account
Contribution will not be deductible, and any gains from investments in this account will not be taxed
There is a limit per year
The contributions can be invested in GICs, bonds, stocks, etc
Any unused limit can be carried forward