7 Savings Accounts you must have in Canada
7 Savings Accounts You Must Have in Canada
These 7 savings accounts, it's a wise way to manage money toward your brilliant future.
7 accounts:
- Chequing Account
- HISA - High-Interest Savings Account
- GRRSP - Group Registered Retirement Savings Plan
- RESP - Registered Education Savings Plan
- TFSA - Tax-Free Savings Account
- FHSA - First Home Saving Account
- RRSP - Registered Retirement Savings Plan
1. Chequing Account
I use a CIBC Chequing account.
Chequing account only for day-to-day expenses.
Do NOT save money in this account with a 0% interest rate. Also, saving money in a regular savings account with 0.1-0.5% ONLY is not recommended.
Try not to save your money in the top 5 banks. Remember that, place your money in a more valuable High-interest savings account, and let your money work for you.
Savings Accounts
2. HISA ( High-Interest Savings Account)
Your money should always be saved in HISA which offers 2.5%-6% interest rates.
HISA should always be your savings account from online banks, not the regular savings account from the top 5 banks.
HISA is a good idea for saving at least $1,000 for emergency use and also at least 3-6 months of household expenses because that money should be kept in an easily accessible account.
HISA will be a short-term saving need. Only put your emergency fund into easily accessible investments, like a HISA or TFSA account. Fixed-term investments and guaranteed investment certificates (GICs) should be avoided.
In my case, I opened 2 HISA. One for only Emergency Fund. Another one is for day-to-day and short-term expenses, like credit card bills, transportation, mortgages, etc.
My personal HISA account:
For example:
If you have around $20,000, you place the money in:
CIBC Saving Account (0.5%): Receive $8 monthly interest ONLY.
Simplii Saving Account(6%): Receive $100 monthly interest.
Why not get FREE MONEY from Simplii?
Simplii Financial is owned by CIBC.
It means CIBC is a physical bank. Simplii is an online bank.
Investing Accounts
Good news to all Canadians!
RESP, GRRSP, RRSP, TFSA, and FHSA, all these accounts are not only savings accounts but also investing accounts. This means that in addition to cash, you can buy and hold stocks, mutual funds, ETFs, and many other investing products to let your money compounding work.
How compounding works?
3. RESP (Registered Education Savings Plan)
RESP is a long-term savings plan to help people save for a child's education. If you don't have kids, skip this account.
Contributing to an RESP allows you to grow your savings tax-free.
Since this money is for a child, the taxable portion of the withdrawal will be allocated to that child, at a much lower tax rate than yours.
Once your child is enrolled in a post-secondary program, they can access the money from their RESP.
If your budget is tighter after you have children, TFSA contributions may be a better option for you. Unlike an RRSP, your TFSA savings account allows you to withdraw anytime you want without tax penalties.
4. G-RRSP (Group-Registered Retirement Savings Plan)
Your employer matches contributions you make to your RRSP. If you don't have a job or you are self-employed, skip this account.
The company where you work will match a percentage of your retirement plan, this is called employer match.
Maximize your Group RRSP matching benefits. This matching program incentivizes you to save more.
Once you register Grrsp program, your employer will automatically deduct your contribution from each paycheque.
When you put 6% of your income earnings into an RRSP account, your company also matches 6% money towards your RRSP account. This is the type of savings worth prioritizing because it allows you to essentially increase your salary.
Let's do the calculation,
Annual salary before tax × 6% = Company matching amount
$70,000 ×6% = $4,200
You deposit $4,200 each year, and the money will be deducted from your paycheck and automatically transferred to the RRSP account. At the same time, your company will also deposit a matching 6% of $4,200 into your RRSP account. So your total annual RRSP savings is $8,400 with just $4,200 on your own money. Pretty good deal, eh.
This is a great savings plan, the matching percentage varies from company to company. It is recommended that everyone working in Canada must participate in the company's Group RRSP.
This matching program it’s basically free money, your employer is right there adding extra savings alongside you. So please allow yourself to take this free money. You can imagine that this $4,200 is the year-end bonus given to you by the company.
5. TFSA (Tax-Free Savings Account)
TFSA is my favorite savings account. All the money you make in the TFSA is tax-free and can be withdrawn anytime.
Remember, TFSA is not just a savings account, but also an investing account. 80% of people just put cash in the TFSA account. Don't you know that you can buy and sell stocks in a TFSA account to boost your savings? A low-cost index ETF is always my highly recommendation for long-term investing.
ETF is a basket of stocks. VFV & VOO ETF tracks the S&P 500 index fund, which means you own the potions of the 500 biggest American companies stocks. S&P 500 averages about 10% annualized returns over decades.
VFV is offered in CAD dollars and is listed on the Toronto Stock Exchange.
VOO is offered in US dollars and is listed on the New York Stock Exchange.
If you are in the USA or you have US dollars in Canada, you can buy VOO ETF.
All you need to know about the power of TFSA 》
6. FHSA (First Home Saving Account)
FHSA is only for First Home Buyers. If you have already bought and live in that house, skip this account.
Annual Contribution: $8,000 for a total of 5 years, meaning a maximum lifetime of $40,000 in contribution room.
FHSA combines the benefits of TFSA and RRSP. When contributing, tax-deductible like RRSP. When withdrawing, tax-free like TFSA.
In my case, I am investing S&P500 ETF in FHSA to build a qualifying first home tax-free in the future.
You can use this estimator to help you understand how an FHSA can help you save for your first home by long-term investing in the S&P 500. Since 1928, the S&P 500 has averaged 11.46% rate of return.
Total invest $40,000 in S&P500 ETF in 10% yearly return.
After 10 years, $40,000 became $84,638, a 200% gain.
After 15 years, $40,000 became $136,310, a 300% gain.
Article from Canada.com: Who can open an FHSA account?
Article from Canada.com: Types of investments in an FHSA
7. RRSP (Registered Retirement Savings Plan)
Banks and brokerages Recommendations:
Chequing Accounts:
HISA- High Interest Saving Accounts:
Investing Accounts
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How do you make sure your money is in the right account?
Which one should you choose to start investing in?
These are the charts that will help you understand those 3 accounts.
My personal investment account priority is TFSA→GRRSP→FHSA→RRSP.
PLEASE DO NOT JUST PUT CASH IN THE Investing Accounts.
Buy some value products to let your money grow, like VFV ETF.
Summary of 7 accounts you must have in Canada:
- Chequing Account: For day-to-day use only.
- HISA: At least 6 months of Emergency fund in HISA.
- GRRSP: Maxed out company matching benefits.
- RESP: Save for your children's education.
- TFSA: Maxed out TFSA contributions each year. Withdraw anytime Tax-Free.
- FHSA: Maxed out FHSA contributions each year. For first home buyer use. Earnings are tax-free and deposits are tax-deductible.
- RRSP: Most companies offer Group RRSPs, but if yours does not, you can enroll in an individual RRSP.
In the next article, I will share how to buy stocks and ETFs in WealthSimple trade step by step.
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