As an investor, figuring out where to put your money is one of the biggest decisions you’ll make. Two popular options are the Registered Retirement Savings Plan (RRSP) and the Tax Free Savings Account (TFSA).
RRSPs are a great place to put retirement savings because they are tax deferred. You receive a tax refund when you contribute to an RRSP, and then you are taxed at your marginal tax-rate at the time of withdrawal. The idea is that when you retire your income will be lower than when you are working, therefore when you withdraw you will have a lower tax burden.
On the other hand, if you’re saving for a new car or a dream vacation, you may be better served with a TFSA. TFSA contributions are not tax-deductible, but withdrawals are completely tax-free.
Invest in short, medium and long-term savings
But do you really have to choose? Most people have a combination of short, medium and long-term savings goals. For this reason, it may be useful to have both a TFSA and RRSP.
Jill Diemer, a Certified Financial Planner from Prospera Credit Union, is an advocate of holding both a TFSA and RRSP. “Both accounts can be an important part of your investment strategy.”
By placing your short, medium and long-term investments in a TFSA, you’re giving yourself options. If something unexpected happens and you need money from your investments, the last thing you want is a big tax bill from withdrawing your RRSPs early. That is where your TFSA investments come in handy.
On the other hand, you also have the flexibility to move money out of the TFSA and into your RRSP and receive a reduction in taxes. “With some goal setting and planning, a certified planner can make sure you’re taking full advantage of both options,” Diemer says.
Convertible term deposit offers flexible option
Speaking of flexible options, what could be better than a convertible term deposit? Prospera Credit Union is offering a 30 month term at 2.5%, with the option to rewrite if rates go up. This investment provides peace of mind that if rates change, you’re still getting great value for money.
A credit union serving British Columbia for more than 70 years, Prospera is proud to serve its 63,000 members from locations in the Lower Mainland, Fraser Valley and Okanagan.