Places to Save Your Money - Where You Can Save Your Money in Canada

Under Your Mattress

We hope that you don’t do this. Every thief knows that this is the first place to look. Ditto with a roommate. Then there was that guy who dug a hole in his back yard and put $10,000 in cash into a glass jar and buried it. Later when he dug it up, he discovered that the water in the soil surrounding the jar had frozen in the winter and cracked the jar. Water then filled the jar and turned the money into a soupy mess. Because most of the bills were unrecognizable, he was not able to cash most of them in. All he was left with was one broken jar of expensive soup.

In Your Safety Deposit Box

Lots of people do this—just ask your bank’s tellers—they can smell it (old money stinks). Stashing cash in your safety deposit box is definitely safer than using a mattress or burying the money in the back yard, but not much smarter. Money in a safety deposit box does no one any good. It doesn’t earn you any interest. The government insures the money you deposit into an account at a bank up to $100,000 (and there are some ways to get higher coverage than this), and if you can’t trust the bank with your money, then how can you trust the bank with the stuff in your safety deposit box?

In Your Bank Account

A chequing account or a regular savings account is no place to save your money. Most of them pay hardly any interest. This is because the bank lends your money to other people when you aren’t using it. Money in a regular bank account might get used often, or you might need to withdraw it quickly, so the bank can’t lend that money out for very long because you might need it. The bank makes money when they can lend your money out for extended periods of time, and at higher interest rates, so then you earn more interest when they are able to do that. Look to earn more interest with High Interest Savings Accounts and Term Deposits or GICs.

High Interest Savings Accounts

These types of savings accounts are usually more restrictive than regular savings accounts, but they pay a lot more interest. Make sure that your bank or credit union is paying you a competitive rate (you can’t negotiate but you can move) and then save away. These types of accounts are usually safe, convenient and their interest rates usually move up as bank interest rates move up.

How to save more money in 2019

Term Deposits or Guaranteed Income Certificates (GICs)

If you know that you are not going to need your savings for a year or more, consider putting your savings into a Term Deposits or GIC (they are pretty much the same thing). These are a great way to try to get more interest on your money than a High Interest Savings Account can offer. However, this is not always the case, but it pays to check. Most banks and credit unions will allow you to put your money into a Term Deposit or GIC with a thousand dollars or more.  

Tax Free Savings Account (TFSA)

For most Canadians, these are the best way to save. A Tax Free Savings Account is your own little tax haven. A TFSA is an official setup that shelters your investment from taxes. A TFSA account allows you to put up to $5,500 per year into your tax shelter and not pay any tax on the interest that you earn or on the growth of your investment. Then when you take your money out of the TFSA, you don’t pay any tax either. So now you don’t have to sneak off to the Bahamas or the Cayman Islands to invest your money and protect yourself from taxes. The government has kindly brought the tax haven to you. Whether you are saving up for a car, a down payment for a house or your retirement, a TFSA is a smart way to save and invest.  

Register Retirement Savings Plan (RRSP)

Before the Canadian government introduced the Tax Free Savings Account (TFSA), an RRSP used to be one of the best ways for many people to save. An RRSP is still a good way to save money, but it is now primarily meant to be a way to save for your retirement. You and your tax advisor (if you have one) will have to decide if an RRSP is right for you.

An RRSP is basically just a setup that shelters your investment from tax until you withdraw your money from the RRSP tax shelter. With an RRSP setup, you can choose to invest in a vast array or normal investments: savings accounts, term deposits, mutual funds, stocks, bonds, and other investments.

The Benefits of an RRSP

  • All contributions (within limits that most people never reach) can be used to reduce the amount of income tax that you pay. If you are paying a lot of income tax, contributing to an RRSP may be a good way of reducing what you are paying.
  • As your investment grows in your RRSP, you don’t have to pay any tax until you take the money out of your RRSP. If you are saving for retirement and you know that your income will be lower than it is now, than contributing to an RRSP may be a good idea because when you take the money out when you are retired, your income will be lower, so the amount of tax that you pay on the money then will be less than what you would pay now.
  • RRSP savings can be withdrawn for a down payment on your first home. The catch is that you have to pay the money back into your RRSP within 15 years. If you don’t do this, then the RRSP redemption becomes taxable and the government sends you a tax bill. Up to $20,000 can be withdrawn. The program that allows you to withdraw this money is called the Home Buyer’s Plan (HBP).
  • Money can also be withdrawn from your RRSP for your education. Under the Lifelong Learning Plan (LLP) you can withdraw up to $20,000 for your education. This program gives you 10 years to pay the money back, but fortunately, you aren’t required to begin paying it back until 5 years after you graduate.
  • If you ever have to declare bankruptcy, the money in your RRSPs is protected. The only portion that's not protected is anything you contribute in the 12 months before filing for bankruptcy.

The Disadvantages of an RRSP

  • All withdrawals from your RRSP plan are taxed as income.
  • 10% to 30% of the money you withdraw from your RRSP is held back for taxes. The percentage that is held back depends on how much you are withdrawing. You can possibly get this money back when you do your taxes if you don’t end up owing the government any money.
  • You must begin to withdraw money from your RRSP when you turn 69. The government has created a schedule that determines how much you must withdraw each year. Most people have been encouraged to use an RRSP to save for retirement. However, many retirees whose incomes have not declined in their retirement years have found that it was not in their best interest to invest in an RRSP. Once these people turn 69 and are forced to withdraw money from their RRSPs and pay tax on the money that they withdraw, they find that they are paying just as much tax – and in some cases more – as they would have to pay if they had invested outside of an RRSP.

Other Investments

There are numerous other investments that you can use to save your money: money market funds, bonds, stocks, mutual funds and the list goes on. If you plan to spend the money that you are saving within five years, it is best to find something safe to invest in. For most people a high interest savings account or a term deposit within a Tax Free Savings Account works just fine. These options are safe and sure—you know that your money is going to be there when you need it—the same can’t be said if you choose to invest in something that has a lot more risk . . . like the stock market.