As you get settled in Canada, the next natural step is to start thinking about building your future here. That involves saving and investing to reach the goals you've set individually, as a couple or for yourself and your family.
You have many options when it comes to investing in Canada. Here we provide an overview of some of the more popular investment solutions available; to help you find the investment opportunities that will best match your plans and goals for the future.
Types of Plans
Whether you wish to open a registered plan or invest outside a registered plan, there are a number of investment solutions to choose from in Canada. Here are some of the most common investment choices for Canadians looking to protect their savings, grow their wealth, or generate regular investment income.
Guaranteed Investment Certificates (GICs)
GICs guarantee to preserve your original investment, while earning interest at a fixed or variable rate or based on a pre-determined formula. They are a popular investment choice among Canadians who are looking for a secure, low-risk way to save their money.
Benefits of GICs:
- Your original investment is guaranteed
- You can choose from a range of investment terms – from one day to ten years
- You can choose how often interest is paid to you – such as monthly, semi-annually, annually or at maturity
A mutual fund is a pool of stocks, bonds and other securities managed on behalf of individual investors. When you invest in a mutual fund, you are purchasing units or shares in a professionally managed portfolio of securities. An RBC® advisor will take the time to understand your circumstances and find the mutual fund most suitable for you.
Benefits of Mutual Funds:
- Mutual funds offer built-in diversification, as they can purchase a wider range of investments than you could on your own
- Funds are managed by professional fund managers who follow the market and select appropriate investments
- You can start investing with as little as $25 with a regular investment plan
- Your money is readily accessible and your units are redeemable as the need arises
Some investment plans are "registered" with the government of Canada, allowing investments within registered plans to grow without being taxed immediately on the income earned so savings grow and compound faster over time. Taking advantage of registered plans is an effective way to grow your money while sheltering the earnings from income tax until withdrawn.
Here are the types of registered plans and how they can help you to reach your goals:
1. Save for any goal with a TFSA.
As you get established in Canada, you may wish to save for a home, a car, or take a vacation. Whatever your goal, a Tax Free Savings Account (TFSA) is a flexible account that lets you save and grow your money, tax-free1. You can open this account soon after your arrival in Canada if you meet the eligibility requirements2.
Benefits of a TFSA:
- You do not need to have earned income to open a TFSA and you can contribute up to the annual contribution limit of $5,5003
- Unused contribution room is carried forward automatically as long as you reached age 18 and were a Canadian resident by the end of the year
- Withdrawals and interest earned are not taxable
2. Save for your retirement with an RRSP.
When you retire after living and working in Canada, you may be eligible for government benefits that provide some income during retirement. However, these benefits may not be enough to fully fund your retirement expenses. A Registered Retirement Savings Plan (RRSP) is a personal savings plan that lets you set aside money during your working years to supplement your income in retirement. Typically, your tax rate is higher during your working years and lower when you retire.
Benefits of an RRSP:
- Contributions to an RRSP are tax-deductible (up to a specified limit), which means contributing to an RRSP may help you pay less income tax today
- The income earned in your RRSP is not taxed until it is withdrawn, so the value of your investments will grow more quickly
- When you withdraw from your RRSP during/in retirement, you will likely be in a lower tax bracket and pay less tax on the funds you withdraw
3. Save for a child's education with an RESP.
The cost of education after high school is not covered in Canada, so it is important to set aside money to cover post-secondary education (such as College, University or a Trade School). A Registered Education Savings Plan (RESP) is designed to help parents (and grandparents or other family members) set some money aside to prepare for future education expenses.
Benefits of an RESP:
- Children under age 18 are eligible for the Canada Education Savings Grant, which currently matches 20% on the first $2,500 contributed annually to an RESP (up to $7,200 per child4); depending on the province you live in and your family income, there may be additional r grants available. Ask your RBC advisor for more information.
- Investment income earned in the RESP is tax-deferred5 as long as it remains in the plan
- Withdrawals from the RESP are taxed in the hands of the student, which usually means they pay little or no tax
The maximum lifetime RESP contribution is $50,000 per plan beneficiary. To open an RESP, your child must be a Canadian resident and both you and your child must have a Social Insurance Number.
Start Investing for Your Future In Canada
RBC has a long history of helping newcomers reach their goals and offers services in more than 200 languages. Whether you're saving for your retirement, your child's education, or a new purchase, RBC Royal Bank® offers investment solutions to help you reach your goals.
- A range of accounts and products – visit rbcroyalbank.com/investments
- Expert advice to help you make informed investment decisions
- Visit an RBC Royal Bank® branch near you and ask to speak to an RBC advisor.
- Speak to a Mobile Financial Planner – locator.rbcfinancialplanning.com
- Call 1–800– 463–3863.
- Prefer to manage your own investments? Visit RBC Direct Investing™ – rbcdirectinvesting.com
- If you have sophisticated investment needs, we can refer you to one of our specialized partners
- If you have more complex investment needs, please contact RBC Dominion Securities (rbcds.com).
- If you reside outside Canada, the international division of RBC Wealth Management (rbcwminternational.com).
The strategies, advice and technical content in this publication are provided for the general guidance only and benefit of our clients. This publication is not intended to provide specific financial, investment, tax, legal, accounting or other advice for you, and should not be relied upon in that regard. Interest rates, market conditions, tax and legal rules and other investment factors are subject to change without notice. The information contained in this publication is current as of October 1, 2015. Readers should consult their own professional advisor when planning to implement a strategy to ensure that individual circumstances have been considered properly and it is based on the latest available information.
Investment advice is provided by Royal Mutual Funds Inc. (RMFI). Mutual funds are sold by RMFI. Guaranteed investment certificates are offered through Royal Bank of Canada and may be held in RMFI investment accounts where RMFI holds the asset in its name, as nominee. RMFI, RBC Global Asset Management Inc., Royal Bank of Canada, Royal Trust Corporation of Canada and The Royal Trust Company are separate corporate entities which are affiliated.
RMFI is licensed as a financial services firm in the province of Quebec.
1) Income earned in a TFSA is tax-free in Canada. There are penalties if excess contributions are made. If a Canadian resident is subject to taxation on their world income in another country (e.g. based on citizenship), the TFSA income may not be tax-free in that country. U.S. taxpayers who hold TFSAs need to comply with U.S. tax requirements such as the annual filing on a timely basis of IRS Forms 3520 and 3520-A.
2) To open a TFSA you must have a Social Insurance Number (SIN) and the individual opening the TFSA must be a Canadian resident who has reached the age of majority in the province he or she resides.
3) The annual contribution limit is $5,500. This limit will rise along with inflation in future years, in $500 increments. In addition, you can carry forward unused contribution room indefinitely. Previous contribution limits were $10,000 for 2015, $5,500 for 2013 and 2014, and $5,000 for the years 2009 to 2012. Your TFSA contribution limit is tracked by the Canada Revenue Agency (CRA); if you are unsure of your limit, please check with the CRA.
4) The Canada Education Savings Grant will add 20% of the first $2,500 contributed annually for each eligible child/beneficiary, up to a lifetime maximum grant of $7,200.
5) Income earned in an RESP is tax-deferred in Canada. There are penalties if excess contributions are made. If a Canadian resident is taxable on their world income in another country (e.g. based on citizenship), the RESP income may not be tax-free in that country. U.S. taxpayers who contribute to RESPs need to comply with U.S. tax requirements such as the annual filing on a timely basis of IRS Forms 3520 and 3520-A.
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