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Maxed out your RRSP & TFSA? Here’s how to keep growing your money

November 21, 2019

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Maxed out your RRSP & TFSA? Here’s how to keep growing your money

Planning & Advice

So, you’ve maxed out your registered retirement savings plan (RRSP) and tax-free savings account (TFSA). Maybe you’re a diligent saver. Or you’ve just sold a home or a business. Maybe you’ve inherited wealth. Whatever the reason, you’ve got additional money to invest.

How can you keep doing that? There are a few different options. Common ones that might come to mind are a Guaranteed Investment Certificate (GIC) or a high interest savings account (HISA). But if you’re looking to maximize growth for the long-term, a non-registered investment account is likely the best bet.

In this article, we’ll compare the three options, looking at the growth opportunities and tax implications of each, to help you decide how to grow your money:

Earn more with non-registered investments

Any investment that generates positive returns will bring you closer to your financial goals. While GICs and high interest savings accounts do generate small, guaranteed returns, historically you’re much better off generating growth in an investment account than letting it sit in a slow-to-grow savings account over the long term.

The chart1 below compares the growth and performance of a non-registered investment, GIC, and high interest savings account overtime. You can see that the non-registered investment account comes out significantly ahead. This remains true even when you factor in capital gains, which we’ll look at below.

Graph comparing the difference in projected growth between non-registered investments, high interest savings accounts, and GICs.

How is the income on these accounts taxed?

The most common types of investment income include: dividends, interest and capital gains. And while the income earned from investments is always subject to tax, not all forms of investment income are taxed the same way. Some investment income attracts less tax. 

Investment income from high interest savings accounts and GICs is considered interest and the taxes owed are based on your marginal tax rate (which varies by income and province). This is noteworthy because this type of tax is the most expensive. 

Non-registered investments can earn a blend of different types of income as a result of what’s held within the account (most commonly dividend income and capital gains). This is an advantage because the gains earned are taxed at different rates, creating an opportunity to reduce the taxes paid on the income earned.

Here’s what those different tax rates look like in Ontario:

Type of Investment IncomeTax Rate*
Dividends7.56%
Interest29.65%
Capital gains14.83%

Now, let’s look at an example of how those tax rates impact returns.

Example: saving $10,000 for 1 year

Pete has run out of contribution room in his TFSA and RRSP accounts and is looking to keep growing his savings. Pete needs to know which account option will earn him more after tax. 

Because he lives in Ontario with an annual income of $65,000, Pete pays taxes on the investment income at the rates listed in the chart above.

Here’s what happens when Pete invests $10,000 into each of the three account types:


Non-registered investmentHigh interest savings accountGIC
Amount invested$10,000$10,000$10,000
Return $600 (4% from dividends & 2% from capital gains)$200 (2% from interest)
$300 (3% from interest)
Principal plus return$10,600$10,200$10,300
Taxes owing$59.90$59.30$88.95 
Investment total, after tax$10,540.10$10,140.70$10,211.05

In this example, a non-registered account provides the best after-tax return.

When should I use a high interest savings account or GIC?

Good question. High interest savings accounts and GICs should be considered when you absolutely can’t afford to lose money in the short-term. Say, if you’re making a down payment on a house in the coming weeks or months.

While investments typically perform better in the long-term, there is no such thing as a guaranteed return. If markets dip while you’re invested, you might want to wait it out until your investment recovers.

By contrast, however, the return on a GIC is guaranteed. And while returns on high interest savings accounts may change occasionally based on the current rate your financial institution has set, they aren’t subject to market volatility and therefore remain pretty consistent. 

WealthBar offers a high interest savings account that earns 2% interest, and it’s currently available free for all invested clients. If you’re sure you need the money soon, this is a great way to park your money while still earning interest higher than the standard 0.5% savings rate.

Not sure which is right for you? We’ve broken down when to use a savings account and when to use an investment account, here

Keep growing your money

Ready to keep growing your money? WealthBar offers professionally managed, non-registered investment accounts.

Any time you’re using non-registered investments as part of your retirement strategy, it’s always a good idea to work with an adviser. 

WealthBar’s team of professional financial advisers will work with you to optimize your investments. We’ll show you your options and guide you toward choices that make sense, given your stage of life and financial goals.

Book a call to speak to one of our advisers today.


Disclaimer: This blog post may make financial planning assumptions such as rate of return, inflation, and/or tax rates to illustrate a concept. It is provided for informational purposes only and is not to be considered as investment advice. Investment returns are not guaranteed. The value of your investment may go down as well as up. There may be significant differences between the investments that are not discussed here, including different investment objectives and risk factors. 

1 Above is an illustration of hypothetical performance of a non-registered investment, GIC and HISA over 30 years with constant 6%, 3% and 2% annual growth, respectively. It does not take into account any fees that may be charged.

* Calculations based on applicable marginal tax rates in Ontario for 2019 assuming $65,000 gross annual income. 

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