Advantages and Disadvantages of Holding a Registered Education Savings Plan, RESP, Through a Bank or Credit Union

We started our first family plan RESP at the local branch of our bank where we have one of our chequing accounts. It’s very common for parents to open an education savings plan where they bank. There are pros and cons to keeping the RESP at a bank branch, especially as the amount of money it holds grows larger: here are some of these advantages and disadvantages.

Common advantages of Holding a RESP at a Bank or Credit Union

You can easily move money from your bank account to the plan.

You can speak with someone who already knows (or should know) a bit about your personal financial situation.

If there are any hiccups or delays in creating your plan or receiving any grants, your branch staff will usually want to help sort it out to keep you as a happy client for other additional services.

You can start and stop contributing depending on your budget. There is no penalty for stopping contributions.

There is usually no fee to have this type of an RESP account although always check before signing anything.

Most bank-hosted RESPs are eligible for all of the various federal and provincial matching education grants. Always check, though, before opening a plan!

You can invest easily within the RESP in

  • a daily interest savings account
  • guaranteed investment certificates, GICs
  • mutual funds offered by that bank or credit union

You can usually buy small GICs, for example a $500 one; Some brokerages require you to buy at least a $5000 certificate.

If you choose to invest only in savings accounts and GICs, you will not pay any annual “management” fees or MERs. The amount you are told you will receive, such as 2% per year for a GIC, is the amount you will get.

You can often buy the mutual funds with no initial fees or fees that have to be paid if you cash them out before some pre-set time. All mutual funds, though, have an annual management expense fee. That fee comes out of the amount you are paid each year from the fund, or from the value of the individual units of the fund. You don’t have to write a cheque to pay it.

You can often set up a steady purchase plan where an agreed amount is contributed to your plan each month and invested as you have requested.

You can get some advice about which products to invest in. The advice, however, may be biased if the representative has been told to try to sell more of a certain mutual fund than of another.

Some Disadvantages to Holding a RESP at a Bank or Credit Union

You can’t always choose a mutual fund that has a low management expense ratio and that holds the type of assets that you would like. For example, you might not be able to buy a mutual fund that replicates the performance of the TSX with a low MER.

You may have to update your risk profile and investing profile if you wish to change the nature of your investments. For example, if you have only invested in GICs in the past, you may have to fill out another form to begin investing in equity mutual funds. (Big Cajun Man even experienced this problem with his regular mutual fund savings account.)

You usually cannot buy mutual funds or GICs offered by a large number of institutions. Most often you can only buy the types of these products which have been issued directly by your bank or credit union.

You often cannot buy Exchange Traded Funds, ETFs. Or if you can, you may be limited to those offered by the bank and not those you want with low MERs.

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Did you open your first RESP at a bank? Have you been happy with the experience or have you switched to another type of RESP? I’m sure there are more advantages and disadvantages that I have over-looked. Please share your views with a comment.

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