Investing Accounts | Money Club

Types of Investing Accounts

When it comes to managing investments, financial institutions offer two very different options for investors:

Full service investing: get advice from them.
- For this option, contact your financial institution.
Self-directed investing: you make all your own decisions.
- To open an account with RBC, click here

You need to decide which option is the best fit for you.

Link to article: Why Some Canadians Choose DIY Investing Over Financial Advisors - convenience, control and lower costs.

There are two kinds of self-directed accounts:

Registered - investments grow tax free
- TFSA, FHSA, RRSP and RESP
Non-registered - investments are subject to tax
- regular 'cash' account

Each of these account types are not a product that you buy. Instead, they are like a bucket. In this bucket you can hold different types of investments: stocks, bonds, ETF's, GIC's etc.

Self-Directed Account

This is a type of account where you:

Make the decisions as to what investments to hold.
Do the work - place the order to buy the investments.

In BC you need to be 19 years old to open one.

What is the benefit?

Much lower costs (expenses). This gives you the opportunity to earn a higher return over time.
2% per year in savings grows into a significant amount over a lifetime.

What is the problem?

You make the decisions and do the work.
You will need to learn the basics. This will take time.

You should choose the self-directed option only if you are:

Interested in personal finance and motivated to learn more.
Committed to building and executing a financial plan.

A Review of the 4 Types of Registered Accounts - TFSA, FHSA, RRSP and RESP

Tax Free Savings Account - TFSA

Designed to help you save and invest.

Are contributions tax-deductible? No
Do investments grow tax-free? Yes
Are withdrawals taxable? No.
How much can you contribute? All Canadians have the same contribution room each year.
To learn more click here

First Home Savings Account - FHSA

Designed to help you save for your first home.

Are contributions tax-deductible? Yes
Do investments grow tax-free? Yes
Are withdrawals taxable? No
How much can you contribute? $8,000/year or $40,000 over a lifetime
To learn more click here

Registered Retirement Savings Account - RRSP

Designed to help you save for your retirement.

Are contributions tax-deductible? Yes
Do investments grow tax-free? Yes
Are withdrawals taxable? Yes
How much can you contribute? 18% of your income in the previous year.
To learn more click here

Registered Education Savings Plan - RESP

Designed to help you save for your kids post secondary education.

Are contributions tax-deductible? No
Do investments grow tax-free? Yes
Are withdrawals taxable? Yes, but as income for the child.
Government match? Yes. If you contribute $2,500/year, the government will contribute $500 = 20% match.
To learn more click here

What Should You Do First? And after that?

What account to use? And in what order?

Here is a great video with some suggestions:

Employer matching RRSP & RPP
Credit Card Debt
Emergency Savings Fund
RESP - Government grants (first $2,500)
FHSA
TFSA
RRSP
RESP - No more government grants

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How to calculate your TFSA contribution room

Your TFSA contribution room is the maximum amount that you can contribute to your TFSA.

Example 1: A person who turned 18 years old in 2009 or earlier would have a total of $95,000 in TFSA contribution room.

Example 2: A person who turned 18 years old in 2020 would have a total of $31,500 in TFSA contribution room ($6,000 + $6,000 + $6,000 +$6,500 + $7,000).