When Did The TFSA Start?

The TFSA or Tax Free Savings Account started in the year 2009.  It was announced early in 2008 and financial institutions were allowed to accept account openings in December of 2008, but no contributions could be made until January 1st of 2009.

Calculating your TFSA contribution room

The start year of the TFSA program is important if you are trying to calculate contribution room.  Every eligible Canadian got $5,000 of new contribution room each year from 2009 to 2012.  For the years 2013 and onwards, the amount is $5,500.

For more information on TFSA rules as well as how to calculate your contribution limits please see TFSA rules.



RRSP Contribution Deadline 2013

When is the RRSP contribution deadline?

The RRSP deadline for 2012 (tax year) contributions is midnight of Friday, March 1, 2013.

60 day RRSP contribution rules

When you file your 2012 tax return, you have the option of claiming any RRSP contributions made during the first 60 days of the current year. In other words – any RRSP contributions made between Jan 1, 2013 and Mar 1, 2013 can be claimed on your 2012 tax return if you wish. These are known as “60 day contributions“.

How can the RRSP deadline be midnight if the stock exchanges are closed at 4:00 pm?

Good question. This deadline is very “soft” – it really represents the day you place your purchase (or at least try to place your purchase). For example if you meet with your financial advisor at 11:30 pm, March 1 in the alley behind your local Tim Hortons, that still counts as a contribution, even if he doesn’t actually buy the investment until the next day or a couple of days later.

RRSP contribution deposit date

But if the deadline is March 1 and the advisor makes your purchase on March 3, how can that be a 60 day contribution? The answer is the “deposit date” of the contribution. If the advisor makes the purchase on March 3, you will get the prices of March 3 (also known as the “trade date”) for your investment purchase but he/she will ensure that the deposit date is set to Feb 29, which means that the institution that is handling the investment (ie brokerage, mutual fund company) will create a 60 day RRSP contribution receipt for you and you can claim it on your 2012 tax return.

Can I just call my financial advisor on Mar 3 and tell him I meant to contribute February 29th?

Yes, you can. Although some advisors might refuse the order, I’d be willing to bet that most of them will still do the purchase for you and backdate the deposit date. Just tell them that you “forgot” or come up with some other lame excuse.   More RRSP contributions mean more money in their pocket. There is a limit however, once you get a week or two past the deadline, it becomes less likely that you will be able to get a contribution receipt. The best thing is to make the contribution on time.

Is the RRSP contribution deadline always March 1st?

No, it isn’t. Here is a table of some future RRSP contribution deadlines:

Year Contribution Deadline
2013 March 1
2014 March 3
2015 March 2

How is the RRSP contribution deadline calculated?

The deadline is calculated using the following steps:

  1. Start with Dec 31 of the previous year.
  2. Move forward 60 days ie Jan 1 is 1 day, Jan 2 is 2 days etc.
  3. If the 60th day is a weekend, keep going forward in time until the next business day.

The majority of the time, the RRSP contribution deadline is on March 1st, because most years, March 1st is during the week. You’ll notice from the table that in 2014, Mar 1 is a Saturday, so the deadline is the following Monday, March 3.
Leap years can also play a part which is why sometimes the deadline is Feb 29.

2013 RRSP Contribution Limits

Find out your 2013 RRSP contribution limits.

Personal Finance

Best Canadian High Interest Savings Rates For Ally Replacement

Updated April 21, 2013. 

The high interest savings account market in Canada is pretty diverse.  On one hand you have the established big banks that offer modest interest rates because most of their customers either don’t have enough cash to care about the rate or can’t be bothered shopping around.  On the other hand there are smaller banks and credit unions that offer much higher rates.

I’ve been one of those big bank customers who didn’t have enough cash to care.  In the last decade or so, most of our extra money has gone to maxing out my RRSP and paying off our mortgage.  Saving money outside our RRSPs wasn’t a priority.

A couple of years ago however, we started up a TFSA savings account in order to have a bit of an emergency fund/savings vehicle for large purchases.  That money has been stored at ING Direct and is currently earning 1.4% interest which isn’t the best rate available, but doesn’t seem too bad. 

Recently, my mother-in-law sold her condo and moved into a senior’s residence.  I’ve been entrusted to look after her savings and try to get a decent rate.  With that motivation, I finally took a good look at the high interest savings accounts available in Canada and had to make a decision about where to put her money.  With all this newfound knowledge, I can also think about moving our TFSAs to another bank to get a higher rate of return.

Streets and Allys

Until recently, one of the contestants in the Canadian high interest savings game was Ally Bank.  This bank was a leader in the marketing arena and they also had some pretty decent interest rates, although not quite as high as some of their competitors.

However, one of the big banks bought Ally and has made it clear that they didn’t make this purchase to obtain the high interest savings account clients who are basically being kicked to the curb.

Not being an Ally customer myself, this news didn’t concern me too much, but the information I’ve researched on interest rates will hopefully help any current Ally customers to find a new home.

The Rates

Enough of the blah blah – let’s get to the rates and then I’ll explain how I made my choice for the best savings account.

[updated/verified April 21/2013]

[table id=14 /]

 *These are temporary teaser rates.

Column explanations:

  • Bank – Name of the bank.  You can use this to search for their website.
  • Savings Account – Interest rate offered on the non-registered savings account.
  • TFSA – Interest rate offered on the TFSA savings account.
  • RRSP/RRIF – Interest rate offered on the RRSP/RRIF savings account.
  • Online – Do they offer online banking.
  • Guarantee – This indicates whether the accounts are protected under the CDIC (Canada Deposit Insurance Corporation) or the DGCM(Deposit Guarantee Corporation of Manitoba). 
  • Quebec Eligible – Indicates if residents of Quebec are eligible to open an account.

My choice for mother-in-law savings (larger dollar amount of savings)

For my mother-in-law’s money, I decided to go with People’s Trust.  Their regular savings account has 1.90% interest and the TFSA is 3.0%, they have online banking and are insured by the CDIC.

I didn’t just choose the bank with the highest interest rate, there were two other factors which were also important to me.

  1. Online banking.   This wasn’t a show stopper factor, but if a bank doesn’t have online banking they better have a pretty high interest rate to make up for it.  We need to do monthly withdrawals from this account.
  2. CDIC coverage.  I’m not comfortable with the Manitoba credit unions because they are insured by a corporation which isn’t backed by the Manitoba government.  Given that they only offer 1/10 of a percent more than the highest CDIC insured rates, I don’t think it’s worth the extra risk to chase a small interest rate difference.

My choice for our TFSAs (more modest amount of savings)

I’ve also decided to go with People’s Trust for our TFSAs.  They have a really good TFSA rate and of course we will already be using them for my mother-in-law’s account.  They have online banking and are CDIC insured.

[EDIT – The original version of this article had a different choice for bank.  It was pointed out to me in the comments that People’s Trust does have online banking and with it’s superior TFSA rate (3%), they will likely be the best choice.]

It’s tempting to stay with ING, since we don’t have a huge amount of money in our TFSA and ING is very convenient and easy to deal with.  However, I’m hoping to add more to our TFSA in the future, so the interest rate difference will add up over time. 

General Recommendations for High Interest Savings Account

I’ve explained how I made my choice for the best bank to save money with, but there are a number of factors involved so I can’t just recommend one bank for everyone.  It depends on your scenario and your preferences.

Here are some things to think about when choosing a high interest savings account:

  • Big bucks – Higher interest rates are more worthwhile for higher dollar amounts. For example if you have $100,000 in savings, an extra half percent is $500 per year or $42 per month.  That will add up to big bucks over a number of years.
  • Longer time frame – The longer you will have the money in the account, the more worthwhile it is to go for a higher interest rate.  The extra money will compound and build over time.
  • Convenience – Are you going to be making a lot of deposits and withdrawals?  Then look for a good online interface and easy access to your bank account.  I’ve been using ING and they have a great interface and easy access to the money.
  • Insurance – All the institutions I’ve listed are insured by the CDIC or DGCM.  I’ve decided I only want CDIC coverage, but many savers will likely be ok with DGCM-protected institutions which offer slightly higher rates.

If you have larger amounts of money and some of it isn’t long term, it might be worthwhile to have two accounts.  One account for the portion that won’t be touched for a long time – go for the highest interest rate for this one.  The second account will be the ‘convenience’ account where the interest rate doesn’t matter so much since there will be a smaller balance and more transactions.

Ok, one recommendation

One recommendation I can make is for ING Direct.  I’ve been using them for a number of years and I think they are great.  The only drawback is that their interest rates are not all that competitive with some of the other banks.

However, if you don’t have a ton of money or your time frame isn’t that long and you want the convenience of a good interface and quick access to your money, the ING is definitely a good choice since the interest rate is likely a secondary consideration for you.

If you do set up an account with ING and want a free $25 deposited in your account after opening, then consider using my orange key code so I can make some money to feed my hungry kids (I get $25 as well) – my key code is 33089336S1  (that’s an “ess” near the end, not a 5).

More instructions on using my orange key code

How Does the CDIC Work?

The Canada Deposit Insurance Corporation is a federal Crown corporation backed by the federal government.  This institution will guarantee your savings at member institutions up to $100,000 per account type and per institution.

CDIC only insures savings products like bank accounts and GICs (with terms up to five years).  Investments such as mutual funds or stocks are not covered.

Any bank accounts (non-registered) at an institution will be covered up to $100,000 in total.  So if you have $80,000 in your chequing account and $70,000 in your high interest savings account at the same bank – the CDIC will only cover $100,000.  If you have more than $100,000 – consider opening up another account at a different institution to get more coverage.

RRSP, RRIF and TFSAs are considered different account types and each have their own $100,000 of coverage.  So if someone had $100,000 in their bank account(s) plus $100,000 in a RRIF, $100,000 in an RRSP and $100,000 in a TFSA all at the same bank – they would be fully covered by the CDIC.

Accounts with different names are also considered as separate for insurance purposes.  For example, someone with a bank account in their name and a joint bank account would have $100,000 coverage for each account because the names on the accounts are different.

How Does the DGMB Work?

The Deposit Guarantee of Manitoba is different than the CDIC.  It is not backed by any government either federal or provincial.  It is a corporation responsible for guaranteeing the deposits in Manitoba credit unions.

DGMB only insures savings products like bank accounts and GICs (with terms up to five years).  Investments such as mutual funds or stocks are not covered.

The amount of savings guaranteed by the DGMB is unlimited.  There is no $100,000 limit like the CDIC has.

The guarantee is available to any person depositing money to a Manitoba credit union regardless of their province of residence.

 If you have an experience with People’s Trust or any other bank mentioned – feel free to leave your thoughts in the comments.


RRSP Myth – Retirement Income Has To Be Lower For RRSP Benefit

Given that we are approaching the end of RRSP season, I thought it would be fun to dispel the most common RRSP myth that I see repeated over and over again in the media.

Related – 2012 RRSP contributions limit and deadline

Since the invention of the TFSA, there have been many articles written comparing RRSPs and TFSAs.  One typical line of advice about RRSPs is that the RRSP is only advantageous if your marginal tax rate in retirement is lower than your marginal tax rate when contributing.   If the marginal tax rate is the same in retirement as when you are making contributions, then there is no tax saved.

Related:  TFSA vs RRSP – Which is best for your retirement account?

Marginal tax rate is the tax rate charged on the last dollar earned in a year. 

This rule is simple, easy to understand, but it’s just not usually true.

Note that this article really only applies to middle class earners.  If you are in a low income tax bracket, then RRSPs are probably not beneficial and can even be harmful financially compared to alternatives.  If you are going to be getting a very good pension in retirement, then RRSPs have little benefit as well. 

This rules seems to assume that taxes on withdrawals are paid at your marginal rate which is not the case.

When you make a contribution to an RRSP – the tax deferred from RRSP contributions is calculated at your marginal tax rate (or close to it, if your RRSP contributions span more than one tax bracket). 

When you withdraw money from your RRSP or RRIF – the tax is calculated using your average tax rate (after other income sources such as pensions).

This is a bit complicated, so let’s look at this concept in chunks:

RRSP contributions are made at marginal (or close to marginal) rates

If Sue from Ontario makes $100,000 per year and contributes $10,000 to an RRSP, she is able defer taxes of $4,314 (43.14% of $10,000) that would have been owed on her last $10,000 of income.

RRSP or RRIF withdrawals are made at the average tax rate

When you earn income, there are different tax bracket rates that apply to different parts of your income. has all these tax brackets if you are interested.  For example, Sue earns $100,000 per year and her marginal tax rate is 43%.  But she doesn’t pay $43,000 of income tax each year.  In fact, she will only pay about $30,000 in taxes for an average tax rate of 30%.  This is because the tax rates for lower income levels is less than her 43% tax rate on her highest income.


Let’s look at a very simple example where Sue works for 10 years, contributes $10,000 per year to her RRSP (with no taxes being deducted at the source) and then decides to take a year long sabbatical and withdraws all the money from her RRSP in her sabbatical year.  If her savings earns 3% per year, she will have $102,000 in her RRSP to use during her sabbatical.

The amount of tax she will pay on $102,000 of income (we’re going to pretend that there are no changes in tax rates in the 10 years) will be $27,647.

Has she saved any taxes?  Yes – she would have paid $4,314 in taxes for each $10,000 that she saved over the ten years for a total tax bill of $43,140.  In the end she will have saved $15,493 in taxes by using her RRSP  as savings account even though the marginal tax rate on the withdrawal is the same as marginal tax rate when she made her contributions.

Example 2

Ok, that example was pretty simple and leaves out an important fact for someone in retirement – they are very likely to have some sort of base pension income such as OAS and CPP and possibly other pensions as well.

Let’s look at another example which is still pretty simple, but includes some other base income.

Joe earns $82,000 per year in Ontario which puts him at the 39.4% marginal tax rate.  He contributes $12,000 per year for 40 years and earns 5% per year.  When he hits retirement he has $1,453,000 in his RRSP and decides to withdraw $58,000 per year.  Joe is already getting $6,000 per year for OAS and $12,000 from CPP and $12,000 from a trust fund for a total of $88,000 per year.  So he’s making more money in retirement and his marginal tax rate is a bit higher than when he was working (43% vs 39%).

The amount of tax he will be paying on the RRSP withdrawal portion of his income each year will be $17,891 which is an average tax rate of 31%. 

Joe has significant pension income, makes more money in retirement, his marginal tax rate is higher, but the average tax rate on his rrsp withdrawal is still less then the tax rate he saved at when making his contributions.


In both of these examples, the income in retirement (or sabbatical) is a bit higher than in the earning years.  Even in this case, RRSPs will likely still save you some taxes or at worst – won’t save you any tax, but won’t cost you anything either.

Most people will earn significantly less in their retirement years and the tax differential will be much greater.  A middle class earner who saves regularly and will make less money in retirement cannot lose by using RRSPs.  They can even earn the same income in retirement or a bit more and still come out ahead with RRSPs.




2013 RRSP Contribution Limits

The maximum RRSP contribution limit for the 2012 tax year is $22,970. There are other factors in calculating the limit, so read on!

Remember that the RRSP contribution limit applies to the previous tax year.

Some rules to calculate your 2012 RRSP contribution limit

Your RRSP contribution limit will be 18% of the previous tax year earned income or the RRSP contribution limit ($22,970), whichever is lower, plus any unused contribution room from previous years.  Earned income basically means income you earn from a job or business (including real estate rental income).  Income or dividends from investments do not create RRSP contribution room. You can find out your current “contribution room” or “deduction room” on your Notice of Assessment which you should have received from the Canada Revenue Agency (CRA) after filing your taxes last year.

Contribution room carry-forward

If you don’t use up all your RRSP contribution room, it will get carried forward forever.

Contribution room is calculated on previous year’s income

One fact which can be confusing is that the RRSP contribution room created by earned income in any given year is applied to the following tax year.  So if you made $50,000 in year 1, you can contribute $9,000 to your RRSP and claim it against your year 2 income (or any subsequent year).  You can’t claim it against the year 1 income.

Maximum age for contributions

You can contribute to an RRSP for any tax years where you turn 18 or older up to a maximum of 71 years of age. You can contribute right up to the end of the year where you turn 71.

What about pension contributions?

Contributions to pension will reduce your eligible RRSP room.

When is the RRSP contribution deadline?

Check this post for RRSP contribution deadline.



Stay Invested In Equities and Stock Markets

How ’bout them stock markets?  Hmmmm…not so good?  Well, whatever you do – don’t wimp out and switch your equities to cash, however tempting as it might be.  Why is that you ask?  To answer that I’m going to go into one of the main lessons of the Four Pillars of Investing – know the history of the markets.  This doesn’t mean memorizing any boring dates or who was present at some document signing but rather taking a look at some past market bubbles…and more importantly, some past market crashes.  The idea here is to put that famous expression “those who cannot learn from the past are doomed to repeat it” to rest!

Investing in stock markets has a huge behavioural component to it – balance sheets and price/equity ratios are all fine and dandy, but the real question is – can you avoid pulling the trigger on the ‘sell’ button when the markets take a nose dive?  Some investors talk of buying when stocks are “cheap” – don’t forget that not selling is the same as buying.  If you take a big loss on your investments and sell, then you have locked in your losses and have no chance of profiting from future stock market gains.

William Bernstein, author of The Four Pillars of Investing, has completed a lot of research which show how the stock markets always come back from the depths.  His advice is “when things look bleakest, future returns are highest“.

Let’s take a look at two examples from his book:

1929 stock market crash

This is undoubtedly the most famous stock market crash of all time – over the course of almost 3 years, the Dow Jones Industrial Average lost about 90% of its peak value from Sept 3, 1929 to July 8, 1932.  Needless to say, this event was quite devastating and many former investors swore off equities forever.  Investors who stayed in equities were rewarded however, since the markets returned 15.4% annually for the 20 years following the 1932 bottom.

1973-1974 crash

This market crash followed a period of great market returns due to the phenomenon of the “nifty fifty” companies.  Unfortunately the “fifty” weren’t so “nifty” after all and the Dow Jones lost almost half its value (sound familiar?) from the beginning of 1973 to the end of 1974.  Bernstein introduces an interesting statistic – in the late 1960’s, which was the middle of a huge bull market, 30% of American households owned stocks.  By the late 1970’s and early 1980’s which was after the big crash, only 15% of of households owned any stocks.  It is unfortunate that so many investors chose to leave the market when the going got rough, because the market returned 15.1% annually for the 20 years following the 1974 bottom.

Stock market prediction time

I’m no economist or stock picker but one of the interesting things I recently found out about the 1929 crash was that the Dow Jones had increased approximately 350% (not including dividends) in the 5 years prior to crash.  350% in five years is absolutely amazing and it shouldn’t be a huge surprise that a bubble had formed.  The aftermath of that bubble was that the equity markets lost 90% of their value (from the peak).  Is this happening again?  I doubt it, the returns of the US equity markets have been relatively modest in the past few years so it is hard to believe that a major bubble had formed.  My grand prediction?  The US equity markets will not lose 90% of their peak value, but rather a lesser number – hopefully much less.


Switching your equity investments to cash after they go down is not a good way to invest.  After events like the markets we have suffered through this year, there is nothing wrong with revisiting your asset allocation but the best thing you can do is to learn more about investing.  Study past market history, read investing books, blogs (especially this one) and keep track of your investments.  If you have an advisor, talk to them frequently and make sure you know what you are invested in.  Stock markets go up and down – the more you are prepared for it, the easier it will be to ride out both the good times and the bad times.

Personal Finance

All About Refinancing Your Home

I recently wrote about an analysis I did on my mortgage to see if it was worthwhile to refinance it.  According to my original analysis, it wasn’t since I would be more or less breaking even.  If I did end up making any money it would have been because of a good call on interest rates rather than the refi itself.  As an interesting side note – we found out the termination fee from both the mortgage company and our mortgage broker.  The mortgage broker’s termination fee was $300 higher which I guess would be their commission for ‘brokering’ the new mortgage.  Always check with the mortgage company for the details.

Mr. Cheap referred me to one of his earlier posts where suggested that a cheaper way to refinance was to make use of any pre-payment room to lower the termination fee.  He points out that you can borrow the money, pay down the mortgage and then get a new mortgage for the original amount and use the cash difference to pay off the loan.  Since the loan would be very short term, the interest should be minimal.

Let’s look at a simple example:

Joe has a mortgage for $150k at 5% interest, 5 year term and he is 2 years into the mortgage. He owes $100k on the mortgage at this point in time. His mortgage broker calls and offers a deal – for a $4,000 breakage fee he can get a new mortgage for 4%.

Joe does the math (without prepaying) and concludes that he would break even so it is not worthwhile.  Then he gets a call from Mr. Cheap explaining how to lower the termination costs by borrowing some short term money.  Joe can prepay $30k so he can lower the termination fee by $1200 to $2800.  Even if he pays $100 in loan interest then his profit is still $1100.

Needless to say Joe is pretty excited and goes ahead with the deal.

However that night Joe gets another phone call from someone named Mike who points out that he left out an important number from his original calculation.  Joe (and Mike) didn’t add the termination fee to the amount of the new mortgage.  Adding $2800 to the mortgage will increase his interest costs by $336 (for 3 years) which lowers his profit to $760.  Not bad, but it’s debatable whether it is worthwhile or not.

Blend and extend

“Blend and extend” sounds like a good recipe for a fancy drink.  It’s hard not to be positive about a smooth sounding marketing line especially when there are no termination fees to worry about.  But is it too good to be true?

A commenter on my blog  gave some details about his ‘blend and extend’

In our case we were 2 years into a 5 year fixed at 5.09%. By blending and extending we brought our rate down to 4.81% (for 5 yrs)

and it cost us a mere $75 to take that option and the paperwork was 1 page or 2. No legal fees or termination fees required in blending and extending.

As I interpret this – the ‘penalty’ is that he just got a 5 yr mortgage with a well-above market rate interest rate.  Right now you can get a 5 yr mortgage for just under 4% so the extra ~0.8% is the penalty.  This is not to say that ‘blend and extend’ is a bad deal, but rather that it’s probably not any better than a normal refinance where you pay the penalty and get a lower rate.

Switch to variable?

Another strategy is to pay the termination fee on your long term mortage and then go for a variable rate or 1 year deal.  The rates are so low that this is very tempting.  However, if you do this you are really just making a play on interest rates.  If you guess right then you might save a lot of dough, if you are wrong then you might be better just leaving things well enough alone.

What’s your story?  Have you refinanced lately?  Share ALL the details and why you think you are saving money.


RESP Contributions Didn’t Get Any RESP Grant

Got an RESP question from a friend of mine which might be of use to some people:

Hi Mike.  I started RESP for 10-year old son last August 2012 – contributed $5000 down + set up automatic withdrawals for $200/month for August, September, October, November, December 2012 (5months x 200=$1000).

I rec’d a government grant for $1000 for the original $5000 lump sum I started with in August. I did not receive any grant for the additional monthly contributions which total $1000 for the remainder of 2012.

Will I get the government grant for this additional $1000 I contributed in 2012 this year? While I play catch-up (started when he was 10 years) I will only receive 20% grant on a total of $5000/year? Any additional contributions in that year will NOT receive the grant?


The answer

You are correct.

The maximum amount of regular RESP grants you can get in a calendar year is $1000, which you got on your original $5,000 RESP contribution in 2012.  Any subsequent contributions made in 2012 will not get any grants in that year or any other year. Once 2013 rolled around, you can start up again and contribute up to $5,000 in 2013 and get the full grant. While contributing money to the RESP that wasn’t eligible for a grant wasn’t your intention, it’s not really a mistake. The extra $1,000 is in the account and is tax- sheltered which is a decent benefit in itself.