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The Age of Savings – RRSPs, RESPs, CSBs, and GICs

28 January 2013

It’s tax time in Canada again, and that has everyone thinking that RRSPs are the one and only savings vehicle in Canada. Or, the best one anyway. But is it really? There are many ways to save your money and sit back and watch as it accrues interest, and the RRSP is just one of them. Here we’ll look at those, as well as RESPs, CSBs, and GICs and look at an element to them that’s often not accounted for – the age you are when you invest in them.

Age comes into play with many of these investment vehicles. The first is because two of them, RESPs and RRSPs, deal with a certain part of your life  – your college years, and your retirement, respectively. The other two can be applied to any part of your life, which is one reason we include them here. Often people wonder, because they’re not headed to school (and don’t have kids that are either,) and because they’re in retirement or very near there, which type of investments to put their money in. CSBs and GICs can be two very good options.

The Scotiabank’s 2013 Investment Poll shows that over half of Canadians (51 per cent) start putting money into their RRSPs before they turn 30. That makes sense, as these accounts are meant to collect money for retirement, and even give you some interest on the side. RRSPs are typically designed for the long-term, with government penalties handed out if you withdraw from the account before you turn 65 (with some exceptions, such as the Homebuyer’s Plan.) But because people want to save as much as possible for retirement, and because many, many years are needed in order to save enough money for retirement, this is usually one of the savings vehicles people use first.

Another reason people start putting money into RRSPs first? Any income placed into these accounts is not taken into consideration come yearly tax time.

RESPs, Registered Education Savings Plans, are typically something people don’t start thinking about until they have children. This is not a tax shelter the same way RRSPs are, but they can be a great way to send your child to school without a student loan, or taking a huge chunk out of your other savings. However, the interest that builds in your RESP will be tax-free, just as it is with RRSPs. One bonus that comes with RESPs and not RRSPs? For every child that has an RESP account, the government will give them $500 a year in government grants.

CSBs – Canada Savings Bonds
When you’re looking for a secure investment, CSBs are a great option. These are money that you give to the government to be used for daily operations, but they’re guaranteed – so you’ll know you get your money back no matter what. You’ll also get interest back  on it, and the funds are always guaranteed by the federal government. You won’t get your money back until the end of a full year (at least,) but you’ll always get back at least as much as you put into it.

In their most simplest terms GICs are bonds, but they’re issued by banks instead of the federal government. They do have more flexible terms, and the interest rates are usually a bit lower, especially if you purchase them for only a short amount of time. GICs have been giving really low rates lately, with the low overnight spending rate, but they are also one of the most stable types of investments you can use.

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