Setting up your finances in Canada? What you need to know to save, invest, and grow your wealth
A guide to getting the most out of investing in Canada.
When you land in a new country, no matter how excited you are about your move, it can feel like you've just created a long 'To Do' List for yourself. You need to figure out where to live, navigate the local culture, and build a network of friends and professional contacts from scratch. That's exciting! But time consuming. You also have to relearn how best to save, invest, and grow your money. That's because most countries have very different tax-advantaged accounts with different rules around things like how much you can contribute and what the funds can be used for. Sometimes, there are even new types of investment vehicles available to you that you might not have had in your home country.
While we can't help you decide between the light-filled apartment next to the park or the cute townhouse in the good school district, we can help you navigate Canada's financial landscape with greater ease. In this article, we break down the basics you need to know about saving, investing, and growing your money in Canada – so that you can meet your financial goals and get to all your other to dos!
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Your savings and investing options in Canada break down into two categories:
- Registered savings accounts
- Investment vehicles
We'll break down your different options in both categories and outline the basics you should know about each of them.
Registered savings accounts
Canada offers tax-advantaged savings accounts to help you make your financial dreams come true. From saving for a travel-filled retirement to putting money aside to help your child fulfill their educational goals — no matter whether they're dreaming of being a Marine Biologist or a lion tamer right now.
Some plans allow you to deduct your contributions from taxable income while others do not. There are four main types.
1. Registered Retirement Savings Plan (RRSP)
An RRSP is a retirement savings account. Your contribution is tax deductible and could result in a tax refund. Your money then grows inside the account tax-free until you make a withdrawal (generally after retirement). At that point, withdrawals must be included in your taxable income and you may need to pay tax. However, you can use the funds to live out all of your exciting retirement plans.
- You can hold a number of different kinds of investments in an RRSP such as stocks, bonds, mutual funds, savings deposits, cash, and more, provided investment is eligible.
- You can contribute up to 18% of your previous year's earned income (generally includes salary or self-employment income), minus pension adjustments, up to the maximum annual contribution limit. In 2022, it was $29,210.
- Many employers offer employee RRSP plans and provide matching money. That means they will match every dollar you contribute, up to a certain limit.
- No employer RRSP? You can easily set your own RRSP at a bank or other financial institution. All you need is government ID, your SIN number, and your personal information like your address and data of birth.
- At 71, your RRSP is automatically converted into an Registered Retirement Income Fund (RRIF). Once it is converted to RRIF, you can no longer contribute to it and you must make minimum annual withdrawals.
- There are rules around withdrawing funds from your RRSP. Generally, withdrawals are taxable in almost all circumstances and are subject to withholding tax. But there are programs that allow you to do that without taxes if you're buying your first home or going to school full time.
Learn more about RRSPs.
2. Tax-Free Savings Accounts (TFSA)
A TFSA is a registered savings plan that you invest in with after-tax money. Your contribution then grows inside the TFSA tax free until you take it out but, when you do, you don't pay any taxes. Need a new car? A long vacation? A renovation on your 1970s era bathroom? A TFSA is a great place to save for it!
- You can hold a number of different kinds of investments in a TFSA, just like an RRSP. That includes stocks, mutual funds, savings deposits, cash, bonds, and more, provided the investments are eligible.
TFSA contribution limits are the same for everyone – they aren't income based. The government sets a different amount every year. In 2022, it's $6,000.
If you don't make your contribution during a calendar year, don't worry. Your unused contribution room rolls over and you can make a contribution in that amount in subsequent years.
- Withdrawing funds from your TFSA does not reduce the total amount of contributions you have already made for the year. Generally, withdrawals made from your TFSA in the year will only be added back to your TFSA contribution room at the beginning of the following year.
- It's a great savings vehicle for short, medium and long-term financial goals such as an emergency fund, saving for a car, or retirement.
- Anyone over the age of 18 who is a resident of Canada with a Social Insurance Number (SIN) is eligible to contribute to a TFSA.
Learn more about RRSPs.
3. Registered Educational Savings Plan (RESP)
An RESP is a savings vehicle that helps you save for the future educational expenses of a child. While contributions are not-tax deductible, investments in the plan grow tax-deferred. RESPs help you make your child's dreams come true - no matter what they are!
- Parents, grandparents, family, and friends can open a RESP for a child and can make contributions into the RESP until 31 years after opening the plan Generally, you would then have until the end of the 35th year after the plan was first opened to use the funds before the RESP expires.
- The government matches 20% of contributions each year up to $500 to the RESP, which is called the Canada Education Savings Grant (CESG). That's equal to $500 per child under 18 up to a lifetime maximum of $7,200.
- Low income families can receive larger government contributions. Canada Learning Bonds provide a $500 initial deposit and then $100 per year up to a maximum of $2,000.
- There is a lifetime RESP contribution limit of $50,000 per child but no annual contribution limit. You can make a contribution in the form of a lump sum.
- Withdrawals are generally used to fund higher education. There are different types of withdrawals you can make, but keep in mind that withdrawals in the form of educational assistance payments are taxable to the student.
Learn more about TFSAs.
4. Registered Disability Savings Plans (RDSP)
A RDSP is an account that's meant to help Canadian residents and citizens with disabilities and their families save for the future. Caring for your disabled loved ones or securing your own future is important. An RDSP is just the thing to help you do that.
- There are government grants and bonds that can help you save like the Canada Disability Savings Grants and Canada Disability Savings Bonds.
- To be eligible to open an RDSP, you must be a Canadian resident with a Social Insurance Number who is under 60 and qualify for the Disability Tax Credit.
- There is a lifetime contribution limit of $200,000 per individual and anyone can contribute to an RDSP on behalf of the holder.
Learn more about RDSPs.
The investments options available in Canada might be different than those in your country. We break down everything you need to know about some popular investment vehicles.
Guaranteed Investment Certificates (GICs)
These are secure, fixed-term investments where you're 100% guaranteed to never lose the amount you invested. Need a place to keep your emergency fund and still earn a bit of interest? Saving for a short-term goal? A GIC might be a perfect fit. You can choose from a variety of types of GICs including:
- Cashable GICs: Give you flexibility to cash out at any time
- Non-redeemable GICs: Your funds are locked in for a specific term in exchange for a higher interest rate.
- Market-linked GICs: Let you can take advantage of the stock market's gains without having to worry about an unexpected downturn causing you to lose your investment.
- Personal Redeemable GICs: Give you flexibility to fully or partially cash them in. Your choice!
Learn more about GICs.
Mutual funds are managed pools of investments that provide you with built-in investment diversification and expert investment guidance. They can be chosen based on your investment goals and risk tolerance. Basically, you get the help of a fund manager to build an optimized portfolio-without the cost. Mutual funds come in a number of different categories including:
- Income funds: Focused on earning interest income for your portfolio
- Balanced funds: Provide a combination of cash equivalents, fixed income, and securities
- Equity funds: Choose from Canadian, US, international, and global funds that invest in stocks
- Index funds: Track market indexes like the S&P 500 to mimic their returns
Learn more about mutual funds.
Stocks are shares in the ownership of a publicly traded company. With a brokerage account or a self-directed trading account like Scotia iTRADE, you can buy stocks from market exchanges around the world including the New York Stock Exchange (NYSE), the NASDAQ exchange, and the Toronto Stock Exchange (TSX). Like following the stock market? Know a few companies you think will take off? Investing in stocks requires time to properly research companies' fundamentals but can help your portfolio grow.
- Stocks can be more risky investments — but can also offer greater opportunities for long-term growth.
- When investing in stocks, be sure to differentiate your portfolio so it's not overinvested in one area and to balance your portfolio risk by investing in a variety of assets with different risk profiles. For example, buy a mix of blue chip or more stable securities, growth stocks, bonds, and GICs.
- You can also buy Exchange-Traded Funds (ETFs) on stock market exchanges. ETFs are similar to mutual funds, but they're traded on stock exchanges and often passively managed. For that reason, they can charge lower fees than mutual funds. They can specialize in many of the same categories as mutual funds.
Bonds are a form of debt that governments or corporations sell in return for promised interest paid to the holder over a specific period. When that period is up, you get your original investment back. Bonds are a great asset to add to your portfolio to reduce risk or if you need regular income.
- Unlike GICs, your money isn't guaranteed in bonds, but bonds can be less risky than securities. The danger is that a corporation or governments could default on the bond.
- You can buy and sell bonds with brokerage accounts like Scotia iTrade.
Learn more about bonds.
One 'To Do' off your list! We can help with the next one
There you have it. You've now learned the basics of saving, investing, and growing your money in Canada. While it might seem like a lot to take in, luckily, there are friendly and knowledgeable people who can help sort it all out.
Make an appointment today at one of Scotia's branches. An advisor will walk you through what you're eligible for and how to set up the accounts you need. We're here to help you get settled and build your future in Canada.
Legal Disclaimer: This article is provided for information purposes only. It is not to be relied upon as financial, tax or investment advice or guarantees about the future, nor should it be considered a recommendation to buy or sell. Information contained in this article, including information relating to interest rates, market conditions, tax rules, and other investment factors are subject to change without notice and The Bank of Nova Scotia is not responsible to update this information. All third party sources are believed to be accurate and reliable as of the date of publication and The Bank of Nova Scotia does not guarantee its accuracy or reliability. Readers should consult their own professional advisor for specific financial, investment and/or tax advice tailored to their needs to ensure that individual circumstances are considered properly and action is taken based on the latest available information.