One of my first tasks as a new mom is setting up an account to save and invest for my daughter’s post-secondary education.
When I attended university, I couldn’t afford to pay my tuition without borrowing tens of thousands of dollars of student loans. This left me deeply in debt at graduation, and paying those loans off got in the way of saving for other financial goals like travel, retirement, and home ownership.
What is the RESP?
The Registered Education Savings Plan or RESP is yet another awesome tax-advantaged savings vehicle available to Canadians, much like the Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP). The RESP is designed to help and encourage parents to save for their child’s post-secondary education.
One of the biggest advantages of the RESP is the eligibility for government grants that match up 20% of your contributions, to a maximum of $500 per year. This is called the Canada Education Savings Grant, and you can receive a lifetime maximum of $7,200 for your child’s post-secondary education.
You put money into an RESP account for your child and they will be able to withdraw these funds to attend a registered college, university or trade school after they graduate high school. As a student, their income will likely place them in a low tax bracket, which means their RESP withdrawals will be taxed at a lower rate compared to what you would pay had you saved for their education in your own investment accounts.
Protecting your investment
If you’re going to be going to the trouble of diligently saving for nearly two decades for your child’s education, you’ll want to know that your money is there when it’s needed.
The Canada Deposit Insurance Corporation (CDIC) is a federal Crown corporation – a part of the Government of Canada – that protects eligible deposits up to $100,000 per deposit category, per member. In the event of a financial institution failure, CDIC ensures that your money is safe.
In 2017, CDIC is celebrating 50 years of covering the savings of Canadians. In that time, there have been 43 financial institution failures, affecting over two million Canadians – but not one dollar under CDIC protection has been lost!
The last failure was 20 years ago, but that doesn’t mean it can’t happen again.
What RESPs are and aren’t protected under CDIC?
RESPs are not a separately insured category under CDIC, but fall under the trust category as long as they are set up as a trust account for your child. Eligible deposits held in RESPs that are not structured as trusts fall under your personal coverage. Ask your advisor if your RESP is structured as a trust.
CDIC protects chequing accounts, savings accounts, and eligible term deposits. So long as the deposit is payable in Canada, is in Canadian currency and is placed at a CDIC member institution, it will be protected in the event of a failure.
When it comes to eligible deposits in your child’s RESP, both the principle and the interest combined are protected up to $100,000, so you can rest assured that your investment in your child’s future is protected!
But not everything is covered. Investments that aren’t protected by CDIC include mutual funds, stocks and bonds, or term deposits with terms greater than 5 years. Make sure to check how the funds in your RESPs are invested, and whether your financial institution is a member of CDIC, so you know if your money is safe.
If you’re unsure about what’s covered in your child’s RESP, use the CDIC estimator tool to determine if your savings are protected.
What do I have to do to get CDIC protection?
This is the best part: nothing!
So long as your deposits are made at a CDIC member institution and are held in eligible accounts, you will automatically be protected. You don’t need to sign up, and the protection is completely free.
Check out CDIC’s fun 5-minute trivia game to learn more about what’s protected in your RESP and how they keep your hard-earned money safe!