It is RRSP season and most of the banks and credit unions across Canada are trying to attract as much of your money as they possibly can. To do this, they are offering a wide range of investments to meet your every need; but are they looking out for your best interest?
Let’s take a look at what they are offering and see who is really benefiting. Today, 5 year GIC’s are being offered at between 2% and 2.5%. Even if we ignore the tax ramifications at the time you withdraw your RRSP, these are very low rates of return. We have to be able to get our clients a better rate of return without taking on more risk.
What if our clients put those same funds down on their mortgage, pretty low risk? Most people today are paying between 3 and 4.5% on an equivalent 5 year mortgage. Yes, if they put money into an RRSP they get some tax savings. That still doesn’t make up the difference in ROI for those paying 3.35% or higher mortgage rates (assuming a 25% tax bracket).
Another third option is to take advantage of both, make the RRSP contribution, and then putting the tax savings the government gives back towards your mortgage.
The key is communicating the options to your clients and then educating them about their choices by showing them some different scenarios. Many people just go along with what their bank tells them without really understanding the different options.
I can deliver value in this area and build stronger relationships.
