I’m Not Sure What to Do with My RRSP Money—What Should I Do Till I Decide?

Well it’s January and “RRSP Season” is officially open. Banks will be angling for your business and offering all sorts of promises of high returns and low risks as tantalizing bait. You may be afraid they may hook and land you like a spring migration Sucker. If you’re not sure what to do with your RRSP money but you want to get it in by the end of February, what should you do?

Keep Your RRSP Funds Flexible and Accessible

Check Transfer Fees for RRSP Funds

What you don’t want to do is

get rushed into a bad decision by an arbitrary deadline set by the government’s tax department.


Before investing anywhere, ask

  • can you can move your money in the future and
  • how much would a transfer cost

Many banks charge $25-150 to move your RRSP money to another financial institution. A very select few charge nothing.

UPDATE: Please be aware that as of January 2015, Tangerine has started charging a fee if you transfer your RRSP or TFSA from Tangerine to another bank, credit union, brokerage or financial institution.

Choose RRSP Investments That Don’t Lock in Your Money for the Long Term

Until you have time to make a strategy and plan your investment, you shouldn’t sign or buy anything that locks you in for a long term.

Beware of

  • regular GICs
    Most Guaranteed Investment Certificates can NOT be cashed before they mature. Only buy redeemable GICs or short-term GICS (6 months to 1 year) if you are still researching your long-term RRSP investment plan.
  • back-end-load mutual funds
    Some mutual funds charge a large fee if you sell them or transfer out of them within the first 5-10 years that you own units in the fund. These fees may be called Deferred Service Charges, DSC fees, or Deferred Sales Charges, etc. Only buy no-load funds while you are researching your plan.
  • cyclical stocks
    Some types of businesses are prone to boom–and-bust cycles. For example, the Canadian petroleum-producing companies often see their stock prices vary in a wavy pattern depending on the swings of the world price for oil. Be very wary investing in any shares or stocks if you are planning to only stay invested for a short time but be especially cautious with cyclical industries.

What Investments Are Good for a RRSP for a Very Short Term Investment?

If you’re committed to doing some research and making a plan for investing your RRSP money, you may need to park your contribution temporarily until you’re ready to start implementing your plan.

What can you invest in for a very short term?

  • A high interest RRSP savings account
  • A short-term GIC
  • A short-term redeemable GIC
  • A money market mutual fund
  • A money market ETF

None of these investments will give you a great rate of return. You are sacrificing yield to increase the safety and accessibility of your principal.

It’s important to remember that you can lose money in a money market fund. Personally, I would recommend the savings accounts or cashable GICs but not the money markets.

Don’t leave your money parked for too long! None of these investments will pay enough interest right now to keep up with the cost of inflation. They make reasonable spots to shelter your investment in the short term but they are not meant for long term use.

The Drawbacks of Transferring a RRSP Contribution to Another Financial Institution

You may have to pay a fee to transfer out your contribution.

It may take 4-8 weeks to move your money from one institution to another. And during that transit time, your money may be earning no interest, distributions, dividends or capital gains whatsoever.

Where’s the Best Place to Invest my RRSP Money in the Short Term?

I don’t know because I’m not you.

Here are some places to consider, though:

Tangerine, formerly called ING Direct
One place to consider is Tangerine.ca ING Direct.

UPDATE: Please be aware that as of January 2015, Tangerine plans to start charging a fee if you transfer your RRSP or TFSA from Tangerine to another bank, credit union, brokerage or financial institution.

From June 1 till July 31, 2014, you can earn 2.50% (That’s the annual rate!) on cash deposited in a RRSP Investment Savings Account at Tangerine ING Direct that increases your total in all savings type accounts at Tangerine above your balance on April 7, 2014. It has to be “new” RRSP money, not just a transfer from another Tangerine ING Direct RRSP product.

It’s important to understand that you are NOT earning 2.5% on your investment for only investing for 3 months. For example, if you contribute $1 000 to your RRSP on January 1, you will not get paid $25 on May 1; You would get a bit less than 1 /4 of that amount, or about $6.

After July 31, the rate will drop down like a rock, probably to the previous rate of 1.35% or less per year. So you will want to keep working on your investment plan and shift the money once you know where you want to keep it for the long term.

There are no fees or service charges nor is there any fee to transfer your RRSP money out of your Tangerine ING Direct ISA to another financial institution at the time this article was written in January 2014. (Always phone and check for changes to fees and transfer fees BEFORE making an investment! Things can change for the worse.)

I will no longer recommend Tangerine because it will charge a transfer fee.

Peoples Trust
Peoples Trust does have free transfers of RRSP funds to other institutions. (Although you should confirm this again before investing.) It only offers GICs, however. There is a 1-year-term non-redeemable GIC available with a minimum investment of $1 000. If you know you won’t be ready to invest the money elsewhere for a year, it is a possible choice to consider.

Home Trust
Home Trust also appears to have free transfers of RRSP funds. (Again, confirm before investing in case this has changed.) It offers 1-year-term non-redeemable GICs and also 90-364 day short-term investments. The minimum investment is $1 000 for a GIC and $2 500 for a shorter term investment.

PC Financial
PC Financial does not offer free transfers of your RRSP funds to other financial institutions. I won’t recommend them for that reason.

Other Institutions
I’m sure there are other places, especially credit unions or trust companies, that can offer similar benefits. If you use one, please share some information about it with a comment.

Where Do I Park My RRSP Contribution?

UPDATE: I no longer will use Tangerine as previously described because they now charge a transfer fee. I usually do drop our RRSP investment in to Tangerine ING Direct in January, and then move it by transferring it to one of our other planned investment choices. It’s worked very well for me in the past, especially since we can make the contribution online with a couple of mouse clicks, and can print off our official RRSP contribution tax receipts very easily. (No waiting for the mail!)

 


Related Reading

Join In
Do you already have a RRSP investment strategy or are you still researching your options? Do you ever park your new RRSP money temporarily until you can use it effectively? If so, where? Please share your views with a comment.

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Yes, we bank with Tangerine.ca among other places. If you open your first account ever with Tangerine (or ING Direct) using our Orange Key below, and deposit $100 before January 31, 2017, you and we will both get a cash bonus of $50 each. (Yes, they did extend the promotion for another few months!) All you have to do is enter the Orange Key 46470587S1  when you are opening your Account, and you’re set to go.

Just copy our Orange Key, then click on this Tangerine link to see the details and apply for an account. (Note: it only applies to people with no existing or previous accounts with Tangerine or ING Direct.)
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  1. Pingback: Canadian Personal Finance News | January 2014 [List] #canadianpersonalfinance | A Listly List

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