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Best RRSP Investments in Canada in January 2023

A Registered Retirement Savings Plan (RRSP) is an investment account designed to help you save and invest for your retirement.

RRSP investments grow tax-free, sheltering your earnings from taxes until you start making withdrawals. The money you contribute is also deductible from your income and reduces the taxes you are liable for today.

RRSPs are a mainstay of retirement planning in Canada, and you can learn more about how the program can help you reach your retirement income goals.

Below are some of the best RRSP investment options to consider for your retirement accounts this year.

Best RRSP Investments in Canada for 2023

An RRSP account can hold various investment products depending on your needs and risk tolerance.

For example, the RRSP strategy utilized by a senior who is retiring in a year’s time and that of a person who has just turned 30 years old can differ considerably.

The 60-year-old senior may be looking at protecting their principal while generating a steady income. Whereas the younger millennial with a 30+ year investment timeframe can opt for an aggressive portfolio mostly made up of equities.

Whatever your plan is, the RRSP accommodates a variety of investments based on guidelines from the Canada Revenue Agency (CRA).

Popular RRSP investments in Canada include:

1. Savings Accounts

Cash held in a savings account is one option to grow your retirement savings. An RRSP savings account offers safety, and your principal earns interest income.

Savings accounts in Canada are protected by the Canada Deposit Insurance Corporation (CDIC) for up to $100,000.

The rate of return on RRSP savings is generally lower than what you could earn from alternative investments. To maximize your earnings, shop around for the best rates available.

Typically, you won’t find the highest rate offered by a big bank and may have to widen your search to online banks and credit unions.

An EQ Bank RRSP savings account or Neo Money Account generally offers some of the best regular interest rates (one of the highest rates in Canada).

While you may be able to find a few RRSP promotions with higher rates, they are often short-lived and only last for a couple of months.

Here’s a list of the best RRSP savings accounts and rates in Canada.

2. Guaranteed Investment Certificate (GIC)

A GIC is a fixed-income investment that pays you a guaranteed rate of return on your deposit after a specific period. They are low-risk and guarantee 100% of your principal, so you don’t have to worry about losing money.

GICs may offer a fixed or variable interest rate, and you can choose from various terms, e.g. 1-5 years.

GIC returns can be similar to or slightly higher than what you get on a savings account, and GIC deposits are also eligible for CDIC insurance.

You can hold GICs in your RRSP accounts and other term deposit products.

Here are some of the best GIC rates in Canada.

3. Exchange-Traded Funds (ETFs)

ETFs simplify investing in your RRSP by making it possible to invest in thousands of stocks and bonds using only a single (or a few) fund(s).

An ETF is traded on a stock exchange similar to a stock. They have in-built diversification as they can hold thousands of stocks, bonds, and/or commodities, and these assets may be representative of multiple sectors or geographical locations.

ETFs are generally cheaper than mutual funds. They are also very liquid and easy to buy and sell.

The risk rating of an ETF varies with the type of securities it holds and can vary from conservative to growth portfolios. Their returns track a benchmark index, and your ETF investment does well when the market goes up… and vice versa.

You can purchase ETFs in Canada using a brokerage platform or robo-advisor.

Brokerage Platforms

If you are a self-directed investor comfortable with managing your portfolio, you can purchase ETFs using a discount broker. Examples in Canada include:

Questrade: They offer access to ETFs, stocks, bonds, mutual funds, options, and more at a low fee. ETF purchases are free. When you open an account ($1,000 minimum funding), you can get $50 in free trades.

Get more details in this complete Questrade review.

Wealthsimple Trade: You can purchase ETFs and stocks and enjoy $0 trading commissions using this platform. It also offers a $25 cash bonus when you open an account and fund it with at least $200 within 45 days.

Learn more about their offerings in this Wealthsimple Trade review.

Robo-Advisors

These online wealth managers create and manage your ETF portfolio on your behalf for a low fee. They do all the work, including rebalancing your portfolio whenever required. One of the best of them all is Questwealth.

Questwealth Portfolios clients enjoy automatic rebalancing, free financial advice, dividend re-investing, automatic contributions, personalized portfolios, and more at a low 0.20% to 0.25% annual fee.

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In Canada, ETF investments may be protected against insolvency by the Canadian Investor Protection Fund (CIPF) for up to $1 million if the company holding your account is a CIPF member.

4. Stocks

Stocks give you a share of ownership in a company and the rights to share in its profits. When you own a stock, you make money when you re-sell it at a higher price (capital gains) and receive a profit share in the form of dividends.

Purchasing individual stocks is a risky investment, and while you stand to potentially earn high returns, you could also lose a lot of money.

Self-directed investors can use a trading platform to buy and sell stocks in Canada. Our top choice is:

If you are new to stock trading, here’s what you need to know.

5. Bonds

A bond is a fixed-income investment. When you purchase a bond, you effectively give out a loan to a company or government and earn a fixed interest on the loan until it matures. The loan (principal) is paid back to you in full at maturity.

Bonds are lower risk compared to stocks, and they typically offer a lower return over time. Types of bonds include Treasury bonds (bills), corporate bonds, and municipal bonds.

You can invest in bonds by purchasing them through a broker or as part of an ETF or mutual fund. Here’s what you need to know about bonds.

6. Mutual Funds

Mutual funds are the most popular type of investment held in Canadian RRSPs, and you can easily purchase a mutual fund at your bank or credit union.

These professionally-managed portfolios can be expensive, easily topping 2% per year for an equity mutual fund.

Similar Exchange-Traded Funds cost much less, and you can purchase them using a robo-advisor at a combined cost of 0.70% or less per year.

For more on mutual funds, read this article.

What is an RRSP?

A Registered Retirement Savings Plan (RRSP) is a retirement account designed by the Federal Government for Canadians to save for retirement.

An RRSP offers several benefits, including tax shelter for your investment returns and tax savings on your contributions. This account forms part of the third pillar of income sources for Canadian retirees.

There are three main types of RRSP accounts:

Individual RRSP: This RRSP account is in your name. You make contributions to it based on your contribution room and can make withdrawals at any time. You can have more than one RRSP account at any one time.

Spousal RRSP: You can contribute to an RRSP account belonging to your spouse. You get tax deductions from contributing; however, your spouse owns the assets. Spousal RRSPs can be used as an income-splitting strategy to lower your family’s overall tax burden when withdrawals start in retirement.

Group RRSP: Your employer may offer a Group RRSP in which they match employee contributions and pay for the cost of managing the plan.

Other types of RRSP accounts include a locked-in retirement account.

What is the RRSP Contribution Limit?

Each year, the government allows you to contribute up to 18% of your earned income up to a maximum amount. In 2022, the maximum annual RRSP contribution limit was $29,210. For 2023, the maximum annual RRSP limit is $30,780.

You can contribute your entire limit within the year or carry-forward part of it to future years. Find out what your remaining contribution is by checking the Notice of Assessment sent by CRA.

If you have a company-sponsored pension plan, your annual contribution limit is reduced by your pension contribution.

The maximum annual RRSP contribution limit over the last 10 years:

RRSP Tax YearRRSP Contribution Limit
2023$30,780
2022$29,210
2021$27,830
2020$27,230
2019$26,500
2018$26,230
2017$26,010
2016$25,370
2015$24,930
2014$24,270
2013$23,820
2012$22,970
2011$22,450

What is an RRSP Over-Contribution?

If you contribute more than your RRSP contribution room, it is considered an over-contribution. The CRA allows a buffer of up to $2,000 in excess contributions, after which you start paying a 1% monthly penalty on the excess amount.

You can rectify this situation by withdrawing the excess amount, and you may need to complete Form T1-OVP and pay the penalty that has accrued.

Learn more about RRSP over-contributions.

What is the RRSP Contribution Deadline?

You have 60 days into the new year to make contributions on your tax return for the previous year. For example, in 2023, your RRSP contributions until March 1, 2023, are eligible to be deducted from your 2022 income tax return.

When your RRSP contributions are deducted from your taxable income, it results in tax savings. If you contributed $10,000 and your marginal tax rate is 40%, you save $4,000 and get this back as a tax refund.

Qualified vs. Non-Qualified RRSP Investments

RRSP investors have a wide array of investments to choose from. However, not all investments are acceptable in your RRSP account.

Also referred to as “qualified investments,” you can use the following securities in your portfolio:

  • Exchange-Traded Funds (ETFs)
  • Mutual funds
  • Stocks
  • Bonds
  • Options and Warrants
  • Savings and Term Deposits
  • Treasuries
  • Gold and Silver (subject to some conditions)

If you invest using “non-qualified” investments in your registered accounts, you could face penalties from the CRA.

Non-qualified investments in Canada include land, investments in small businesses, and bonds issued by a company whose shares are not publicly traded, e.g. those sold Over-the-Counter (OTC).

Benefits of an RRSP

An RRSP can help you grow your retirement savings quickly, with returns compounding tax-free over time. Other benefits include:

  • Tax-deductible contributions mean you can save on taxes today and pay them in retirement when your tax bracket and rate is likely lower.
  • You can borrow tax-free funds from your RRSP to pay for a home (Home Buyers’ Plan) or to pay for school (Lifelong Learning Plan).
  • Couples can split their retirement income using a spousal RRSP account and lower their combined tax burden.

RRSP vs TFSA

A Tax-Free Savings Account (TFSA) can be used in similar ways to the RRSP to save for retirement.

In a perfect world, you’d max out both accounts. However, what happens if you can only afford to contribute to one of them?

TFSA vs. RRSP? Which one to choose?

  • TFSAs are great for short-term and long-term savings. If you are saving money towards a vacation, home down payment, car, or wedding, you can easily use your TFSA and withdraw the funds when needed.
  • TFSA contributions are not tax-deductible, and withdrawals are tax-free.
  • The TFSA annual contribution limit for 2023 is $6,500 (also $6,000 in 2022). Whereas, for the RRSP, you can contribute up to $30,780 in 2023 ($29,210 in 2022) if you have enough earned income. An RRSP offers more room to grow your retirement savings faster.
  • If you are in a high tax bracket, you save more in tax deductions when you contribute to an RRSP. If your tax bracket in retirement is going to be higher or similar to what it is now, you may want to first use up your TFSA account.
  • An employer may offer to match your contributions to a Group RRSP. In that case, you should take advantage of the free money being offered and max out your RRSP contribution.

There are many angles to choosing between a TFSA and an RRSP. You can learn more about your options in this detailed TFSA vs RRSP comparison.

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Author

Gravatar for Enoch Omololu, MSc (Econ)
Enoch Omololu, MSc (Econ)

Enoch Omololu is a personal finance expert and a veterinarian. He has a master’s degree in Finance and Investment Management from the University of Aberdeen Business School (Scotland) and has completed several courses and certificates in finance, including the Canadian Securities Course. He also has an MSc. in Agricultural Economics from the University of Manitoba and a Doctor of Veterinary Medicine degree from the University of Ibadan. Enoch is passionate about helping others win with their finances and has been writing about money matters for over a decade. He has been featured or quoted in The Globe and Mail, Winnipeg Free Press, Wealthsimple, CBC News, Financial Post, Toronto Star, CTV News, Canadian Securities Exchange, Credit Canada, National Post, and many other personal finance publications. You can learn more about him on the About Page.

His top investment tools include Wealthsimple and Questrade. He earns cash back on purchases using KOHO, monitors his credit score for free using Borrowell, and earns interest on savings through EQ Bank.

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