A limited budget doesn’t have to limit savings

As tax time approaches, consider your options to save

Joanna Bhaskaran, staff

Close to 40 per cent of Canadians polled had started saving before their 21st birthday, according to a 2002 report by Canada Investment and Savings, part of the federal Department of Finance.

Quite a few Canadian banks, including CIBC, RBC and Assiniboine Credit Union, offer student-specific savings accounts. Most offer less than one per cent annual interest. In addition to this the government levies a tax on every $100 earned in the account as it counts as part of your taxable income.

Brett Intrater, a first-year science student at the University of Manitoba, has both an RRSP and a savings account. He said that the RRSP account is his most effective savings vehicle.

“My parents started this account for me, and it’s definitely useful. I’d recommend all students try to save at least a little bit if they can afford it.”

Registered Retirement Savings Programs (RRSP) are another savings option. A minimum monthly payment of $25 is needed to keep the account open. Any money saved in this account is not taxed. Money can be withdrawn from the account, but a 10 per cent withholding tax is charged on the amount withdrawn.

A student who earns on average $12 an hour and works for 20 hours a week is looking at earning somewhere in the range of C$1,080 a month and C$12,690 a year but paying $690 dollars every year in taxes. However, if he or she decides to invest money into an RRSP account at $25 a month, they get a tax credit of $78 a year and can save $312 at the end of four years.

Errick Sodaymay, an investment specialist from RBC said that there were two types of ways to generate revenue. RRSPs and Non Registered Accounts (NRA).

“Once money is introduced into an RRSP account you can simply choose to leave it there in a normal savings account, which will generate a very low rate of interest or you can choose other investment options.”

Any money introduced into an RRSP account will be tax-free while any money in a NRA, including taxes earned on the initial investment, will be taxed.

“The account option you choose depends on your flexibility and what you’re looking for.”

RRSP accounts are longer term and less flexible. NRAs are more flexible but more risky and the term can be set for however long you choose.

Sodaymay recommends that if students can afford it, they should hold both types of accounts. The RRSP account because of the guaranteed returns and the NRA accounts because of the high rate of interest.

Sodaymay explained, “If you decide to invest money into saving . . . speaking to an investment specialist because the same type of savings vehicle may not work for everyone.”

The benefits of a savings account could be that a predetermined amount could be taken off a paycheck bi-weekly without the donor ever missing it, Sodaymay continued.

A new Tax Free Savings Account (TFSA) introduced in the federal budget will allow up to $5,000 to grow tax-free and withdrawing money in case of an emergency will not result in a withholding tax. However, the public will not be able to use the new account until 2009.