What are the advantages of investing in Canada?
Whether you’re planning your retirement or saving for that special project, there are many advantages to saving and investing your money in Canada.
- Tax savings and grants: Investing in Canada is a win-win situation. On top of the tax deductions available through certain savings accounts and plans, you may also be eligible for government grants that can help build your savings.
- Reliable, secure financial institutions: Canadian financial institutions are subject to strict regulations that ensure their practices are ethical and prudent – meaning you know your money is safe. In fact, most of them are members of the Canada Deposit Insurance Corporation (CDIC), an organization dedicated to protecting the savings you deposit with your banking institution.
- Trusted specialists: In Canada, you have access to specialists who can help you make the right investments. Be sure to check out their certifications to understand what they can do for you. A useful and reliable source is the Canadian Securities Administrators (CSA) website.
- Economic stability: The Bank of Canada, a centralized, independent institution, helps maintain economic stability and regulate interest rates.
What’s the difference between saving and investing?
- Saving is putting money aside to maintain a financial reserve.
- Investing is acquiring investments such as stocks or Guaranteed Investment Certificates (GICs) to make your money grow.
What’s the difference between saving and investing?
- Saving is putting money aside to maintain a financial reserve.
- Investing is acquiring investments such as stocks or Guaranteed Investment Certificates (GICs) to make your money grow.
Which Canadian savings account should you choose?
In the Canadian financial system, there are a number of different accounts and savings plans with various advantages, including tax benefits. Each has its own distinctive features, allowing you to achieve specific financial goals and carry out all your projects.
These include registered savings plans, which are government-registered accounts that offer tax advantages. Examples include RRSPs (Registered Retirement Savings Plan), FHSAs (First Home Savings Account), RESPs (Registered Education Savings Plan) and TFSAs (Tax-Free Savings Account).
Good to know: To benefit from the tax advantages offered by these savings accounts, you must be a Canadian resident for tax purposes. To learn how to determine your residency status, check out our article: Taxes for non-residents and residents of Canada.
You also need a Social Insurance Number (SIN), a unique identification number issued by the government. For more information, visit the Government of Canada website.
RRSP (Registered Retirement Savings Plan)
Tax benefits:
- By contributing to an RRSP, you’ll reduce your taxable income and save on taxes.
- RRSP earnings are tax-free.
Use for:
- Retirement: RRSPs allow you to save for retirement over the long term. The funds are not taxed until you withdraw them from your account, making it more advantageous to withdraw them at retirement when your income is lower.
- Buying your first home: The Home Buyers’ Plan (HBP) lets you withdraw money from your RRSP tax-free to buy your first home. Learn more about the HBP.
- Going back to school: With the Lifelong Learning Plan (LLP), you can withdraw money from your RRSP tax-free to go back to school. Learn more about the LLP.
To be eligible for RRSP contributions, you must have earned income and filed a Canadian income tax return. Maximum contribution room is based on a percentage (18%) of your previous year’s annual income, up to an annual limit. You can contribute to an RRSP up to December 31 of the year you turn 71.
Learn more about the features and conditions of the RRSP.
FHSA (First Home Savings Account)
Tax benefits:
- By depositing money in a FHSA, you’ll reduce your taxable income and save on taxes.
- FHSA earnings are tax-free.
Use for:
- First-time home buyers: The FHSA is specifically designed to help you save for the purchase of your first home. While withdrawals are tax-free, they become taxable if you withdraw money for a purpose other than buying a home.
To be eligible for FHSA contributions, you cannot have lived in a home owned by you or your partner – in or outside of Canada – in the current year or in the last four years. You must also be between the age of majority in your province of residence and 71.
Learn more about the features and conditions of the FHSA.
RESP (Registered Education Savings Plan)
Tax benefits:
- You’ll receive grants from the federal and provincial governments when you contribute to your child(ren)’s RESP. The value of these grants is calculated based on a percentage of the amount contributed. The federal government offers the Canada Education Savings Grant (CESG), which amounts to 20% of the first $2,500 ($500) per year, up to a maximum of $7,200. Provincial and territorial grants vary from region to region.
- Money deposited in an RESP grows tax-free.
Use for:
- Your child’s post-secondary education: The RESP is designed to help you save for your child’s post-secondary education. Only a portion of the money will be taxed upon withdrawal.
There are three types of RESPs: family, individual and group. Find out which one is right for you.
Learn more about the features and conditions of the RESP.
Good to know: The Government of Canada offers benefits to people with lower incomes in the form of tax credits, grants, benefits and allowances. The Canada Learning Bond (CLB), for example, is an incentive designed to help you save for your child’s education. It offers up to $2,000. Here’s a complete list of Government of Canada credits and benefits.
TFSA (Tax-Free Savings Account)
Tax benefits:
- TFSA earnings are tax-free.
Use for:
- Saving and investing for short or medium-term projects: TFSAs aren’t tied to a specific savings goal, and contributions aren’t tax-deductible. You can withdraw money from your TFSA for any type of short- or medium-term project. This makes it more flexible and straightforward than other savings plans.
Learn more about the features and conditions of the TFSA.
To learn about other registered savings plans available in Canada and their key features, check out our article: What is a registered plan or account?
High Interest Savings Account
Tax benefits:
- This type of account has no tax advantages, but it allows you to grow your money at an attractive interest rate and keep it in an easy-to-access account.
Use for:
- Emergency funds and short-term savings: This type of account is ideal for storing emergency funds. Unlike a chequing account, it allows you to earn interest. And since the money isn’t tied up in investments, it can be easily withdrawn when you need it.
Pro tip!
It can be worthwhile to have several types of savings accounts so you can combine their advantages to suit your projects.
Which specialists can advise you on investing in Canada?
Start by making an appointment with an advisor who can assess your financial situation. They can then recommend a financial planner to help you develop investment strategies – or another type of specialist, depending on your needs.
Financial advisors
The main role of a financial advisor is to help you manage your day-to-day finances (making a budget, savings, banking products and savings accounts, opening accounts, etc.). They can also give you investment advice.
Financial planners
The specific role of a financial planner is to advise you on your financial plan and the investment strategy you should adopt to achieve your goals. These specialists will support you in your short- and long-term strategies and help you optimize your retirement and estate planning.
Note: To access this type of specialist, you may need to have a relatively high level of income or savings.
How can you become a self-directed investor in Canada?
In Canada, self-directed investing is also a possibility. This means you can make your own investment choices and transactions, rather than entrusting this task to someone else. Self-directed investing is mainly carried out via online platforms or mobile applications.
Discover our platform for self-directed investors:
Read our advice on how to get started: Are you ready for self-directed investing?
To improve your knowledge of the stock market, check out our article: How does the stock market work?
What are the best investment opportunities in Canada?
To find out which investments are best for you, you first need to determine your investor profile and risk tolerance.
Principal-protected investments
These investments are ideal if you have a low risk tolerance because they guarantee the amount initially invested. In Canada, the main investments in this category are GICs (Guaranteed Investment Certificates). There are different types of GICs, such as fixed-rate and variable-rate options.
Investments available in Canada
Apart from GICs, which are specific to Canada, you’ll find the same types of investments as you would in other countries, such as stocks, bonds, mutual funds and so on.
To learn more about the different types of investments, check out Your guide to investments : Read before investing.
How much should you save and invest?
To have money to invest, you first need to save money. To determine how much to save, the first step is to identify your goals and assess your savings capacity based on your budget. Then you need to set up a savings plan.
Defining your savings goals and plan
Immigrating can have a major impact on your finances and budget, so it’s important to be well prepared and review your savings plan.
Here are some things you can do to adapt to your new reality:
- Your budget – What’s your income and what are your expenses?
- Your savings capacity – how much are you able to save?
- Your savings goals – have your plans and goals changed?
Need advice on setting up a savings plan? Check out our article: How to save for your projects.
To help you determine how much you should save for each of your projects, take a look at our article: How much should you save?
Now that you know how to make your money grow in Canada, all you have to do is start saving.
