THE FACTS
- An Education Savings Plan registered under the Federal
Income Tax Act.
- Allows savings and interest to compound tax free.
- Qualifies for a Canada Education Savings Grant that
provides a 20% top-up on the first $2000 deposited annually per child.
- All interest is paid to the student (your child) and is
taxed at their rate, which could attract little or no tax.
- Return of and/or rollover to an RRSP of the interest if
the nominee (your child) doesn't advance to post-secondary education under
certain conditions and circumstances.
THE BENEFITS
- Tax free growth:
Interest compounds tax-free in the Plan.
- Income splitting:
Interest that would be attributed to a subscriber in a regular savings plan
is attributed to the nominee (the student) in an RESP.
- Guaranteed:
Principal invested in fully insured or government guaranteed securities.
- Affordable:
Saving plan and corresponding deposit schedule based on each individual's
budget.
- Greater growth:
20% top-up on the first $2000 deposited annually per child.
- Motivational:
Most important over 85% of children with mature CST plans actually enroll in
post-secondary education, and of those 94% graduate.
TYPES OF RESPs
Group
- Fully secured investments
- Form of forced savings
- Tontine principle can add to yield
- Limited investment knowledge required
- Sponsored by non-profit organization
Self-Directed
- Can invest in non-secured investments
- No requirement to save regularly
- Needs more knowledge of investment in general and more
time to monitor investments
- Sponsored by for-profit organization
MUTUAL FUNDS
Pros
- Investment diversification
- Liquidity
- Flexibility
- Potential higher returns
Cons
- Potential of lower returns
- Complacency of investor
- Investors sometimes have no real idea in what they are
investing
- Theories and predictions are not often questioned
- For profit
- Impact of MER
BANKS
Pros
- Accessibility
- Liquidity
- Variety of Investments
Cons
- High Service Charges
- Informal Service
- New to the RESP market
- For profit
- No requirements to continue to save over the years