Savings as a Financial Misnomer

bigcajunman

January 30

The word Savings appears in many different Registered investing vehicles. Specifically:

The Registered Education Savings Plan (RESP)
Registered Disability Savings Plan (RDSP)
Tax-Free Savings Account (TFSA)
Registered Retirement Savings Plan (RRSP)
First Home Savings Account (FHSA)

The word savings, in these account descriptions confuses many folks. The word is correct if taken as a Verb (i.e. the act of putting money away). The problem arises when folks assume the definition is a Banking Term.

A Savings Account is a classic banking service. An account to put money that you don't touch for a while receives interest for leaving the money alone. In some cases, a high-interest savings account (HISA) is also mentioned.

All of the above accounts can be Savings Accounts (usually a HISA). This is where the savings part is a misnomer; none of these accounts can only be savings accounts. They can all be Investing Accounts, where the constituent parts can be:

Stocks in Companies like RBC or BCE
Index Funds and ETF Funds (like Vanguard)
GIC's
Bonds
Savings Accounts (e.g. TDB8150)
Other vehicles

Depositing Into Account

More than once, friends have told me they have made their max deposit in their TFSA. Inevitably I ask, "What do you mean by that?". I often find out that their TFSA is a simple Savings Account (sometimes a HISA that pays almost 0.5% annually). Many banks aim their clients at this simplistic TFSA model. If an investing model used conservative ETFs or Index Funds over the past few years, growth could easily have been 5% annually.

Savings or Saving

You should be saving in these accounts, but they do not only have to be Savings accounts. Don't be fooled or "advised" into believing any of the Registered accounts can only be a Savings account.

FAQ on Registered Savings

An FAQ for this? You'd be surprised.

For an RESP, RDSP, TFSA, RRSP, or FHSA are they only savings accounts like an HISA?

It does not have to be. Depending on how the account is set up, it can be a simple trading account where you can purchase: Securities, Bonds, GIC's and other more exotic savings vehicles

Why do people think these accounts are only Savings accounts?

Sometimes folks assume things, but many times, the provider is not clear with the subscribers. Learn what is possible before setting up any of these accounts.

Can the accounts be changed to a more full some savings vehicle like a trading account?

Not easily, it might be simpler, to transfer the account to a different provider, who sets up the account as a trading account. Inquire with different providers before doing any of this.