Tag Archives: family

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

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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 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.

Related Reading

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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.

For Love or Money

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Krystal Yee recently wrote “When do you have the ‘Money Talk’ In a Relationship.” It made me shudder, frankly. I can’t imagine the horrors of having to date again much less having to sound out new partners on everything from STDs to HELOCs. It was another (unneeded) reminder of how incredibly wonderful it is to be married, in love, and working &*%*$ hard to stay that way.

She’s right, though, that money can break many relationships and add a lot of tension to others. One older married couple I’m related to have had to invest patience and empathy in solving their basic difference in money outlooks: one is always afraid of being destitute, the other is always sure things will work out. Fortunately since they were both professionals earning a good income their disputes were never enough to drive them apart. For a family with a much more modest income those same differences could well have ended in divorce.

The High Cost of Divorce

Divorce itself is a huge reason for poverty. In NewsWeekly from Australia, Augusto Zimmermann lists various studies that have shown a decline in living standards of up to 30% in the US in families who divorce.

I’m sure you know people who have divorced; you may even be someone who has divorced. If you run through the list of those you know who are divorced, I’d be very surprised if each of those families are financially as well-off post divorce as pre. (Obviously, though, there are reasons why divorces are necessary even if they may be financially devastating.)

Marriage and Money

Perhaps ironically, the marriage ceremony itself can cause financial hardship.
When a couple of my older relatives married, they had a church service for friends and family followed by a reception in the church hall with sandwiches, squares and cookies, and a slice of the wedding cake. Half of the family couldn’t attend because they didn’t own cars and taking the train from one province to another was unthinkably expensive.

Fast forward to today when it’s not unusual for middle-class couples to have a “destination” wedding where everyone flies to another country and stays in a hotel for several days. Every single thing, from the officiate to the food and drinks must be paid for at retail rates.

If you wander through the internet with a search term like “I can’t afford to go to your destination wedding” you’ll score dozens, if not hundreds, of articles. Salon has covered it. Ask Ellie has too.

Melissa Leong at the Financial Post wrote about this new trend in weddings in “No, I don’t want to go to your expensive wedding.” She describes people paying $500- 1000 just to attend a stag or stagette. What has made this “normal”?!

MamaMia wrote about the significant changes in the costs of being a bridesmaid, too, in “Actually no, I don’t want to be your bridesmaid. I can’t afford it.”

All of the articles speak to the same problem. In North America, at least, people find it tremendously difficult to tell a friend or relative that something costs too much. The embarrassment seems to rank right up there with public speaking or asking them about their sexual preferences.

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So how are people supposed to cope with the demands of love and the role of money in their lives? I don’t know. If you do, please share your advice with a comment.

In the meantime I’d better start saving some more money. I’d hate to have to miss my children’s weddings because I can’t afford to attend!