Understanding TFSA's, RRSP's And Investments
Whatever you’re saving for - the down payment on your first home, capital to start up a business, your children’s education or your retirement - you need to find the best saving and investment plan so you can prepare for whatever the future holds.
A typical savings account isn’t going to provide you with the interest you need to really grow your money. A wide range of options are available to suit your plans and investment style. Low-risk options like registered plans, guarantee both the money you are investing and the interest. Riskier options, such as stocks and mutual funds, could accelerate higher returns - but there are no guarantees on your principal or rate of return. If you are able to lock your money in for longer periods, the returns are considerably higher.
There are several, government registered, tax-sheltered options that can help you invest for your future while saving tax now.
Any interest earned on money you place in a TFSA is tax-exempt.
The limit on how much you can contribute changes - for 2019 it is $6,000. If you don’t contribute one year, the amount you can pay the next year grows.
TFSA's aren’t tax-deductible but you won’t be charged tax on any withdrawals you make, ever. They can hold the same types of investments as RSPs, so investment income like dividends and capital gains are tax-exempt.
If you withdraw from a TFSA your contribution room isn’t lost, it gets added onto the following year.
The big advantage of RRSPs is that payments are tax-deductible and income earned is tax-sheltered.
You can invest up to 18% of your earned income or that year’s maximum amount, whichever is the smallest (for 2019 the maximum is $26,500).
Taxation occurs when the money is withdrawn which is usually at retirement where many people are in a lower income tax bracket.
You can hold all manner of investments in RRSPs, like stocks, shares, bonds, mutual funds, ETFs and GICs (learn more about these options below).
While saving for your children’s education, no tax is paid on investment income or growth so long as the money stays in the RESP. Withdrawals are taxed when the student withdraws the money, which, with a low tax bracket, usually means little to no tax being paid.
Types of Investing
The level of risk you’re comfortable with, the length of time you can lock in money and whether you want a hands-on or hands-off approach to investing all influence the kind of investments that are best for you. Whatever kind of investor you are, there’s an option, or combination of options, that’s right for you:
These investments are ideal if you’re risk-averse, with principal and interest guaranteed 100%. With First Calgary’s term deposits, you invest for a fixed period of time and get a guaranteed return. Your best return is with non-redeemable deposits, for example, our five-year term deposit with a guaranteed annual interest of 2.5%. However, if you withdraw your money before the term is up, you pay a penalty.
Government bonds offer a safe investment but returns can be very low. Company bonds offer better returns but aren’t as safe - if the company goes under, you could lose the money you invested.
Mutual funds and ETFs allow you to buy groups of stocks, bonds and securities that are managed by financial professionals. They offer a more diversified portfolio, thus reducing risk and can bring high returns.
Stock Market Investing
First Calgary has partnered with Qtrade and VirtualWealth™ to provide our members with the means to buy stocks without the time, knowledge or stress that is often involved.
Qtrade allows you to build a diverse portfolio of investments that you have control over. With zero commission on their hand-picked ETFs and fees of only $8.75 per trade, Qtrade also makes the stock market more affordable. VirtualWealth™ provides you with a professionally managed, low-cost portfolio of ETFs that matches your current financial goals. They continuously monitor and rebalance your portfolio so you don’t have to.
Final Word - "The key is to start early"
The earlier you start saving, the more money you will have when you need it. Our experienced investment team can help you to choose the right investment products for your situation and goals.