Saving money for the future is not only a skill but a necessity. Whether it be for education purposes, to purchase your first a home or an emergency, saving money early in life involves having the right mindset and knowing where and how to put away extra cash.
1. Savings Accounts
Saving accounts are the basic money saving tools that every individual should have regardless of age. From allowances to money left over after paying monthly expenses, saving accounts permits to put away cash in a safe and accessible location. You have the ability to make withdrawals when needed, however; you will lose the power to make your money work for you by diminishing the interest that can be incurred.
2. High Yield Savings Accounts
For individuals that have the capability to set aside money on a monthly basis, a high yield account is another money saving option to consider. As the name suggests, these accounts offer a slightly higher interest rate that an ordinary saving account. There are a variety of financial institutions (including virtual banks) that offer high yield accounts in which you may select from depending on their interest rates and related service fees. Accessing your cash in a high yield account is easy, however; some institutions may need 24-48 hours to transfer the funds into your chequing account.
3. Tax Free Savings Accounts
For individuals that would like to begin saving for the long term (i.e., more 5 to 7 years), tax free savings account is a great money management tool. This specific savings account was established by the federal government to encourage citizens to save for the future by offering the opportunity to invest up to $5500 per year which will not be taxed. In order to be eligible for a tax free savings account, you must be 18 years or older. You may withdraw money from the account without getting taxed on the amount.
4. Canadian Savings Bonds
Canada Savings Bonds were created in 1946 by the Government of Canada to help Canadians reach their savings and investment goals. You can buy a bond for as little as $100 and expect a full interest payment when the bond comes to maturity. You can select to cash in the bond before the maturity date, however; you will receive the amount invested plus all the interest earned for each full month that has elapsed since the issue date or until either the maturity date or the redemption date, whichever comes first.
5. Guarantee Investment Certificate
Guarantee investment certificates (GIC) allows individuals to place their savings in an investment for a fixed period of time. The length of the investment period can range from a few months to years. Since the financial institution guarantees the return of the money invested, GIC are safe and offer little risky. If you require your cash before the investment period comes due, you will incur a penalty.
6. Registered Education Savings Plan (RESP)
For individuals that wish to be prepared for costs associated with enrolling themselves or children in college and university, the federal government established Registered Education Savings Plans (RESP), Through the plan, individuals can contribute to the fund without incurring any taxes on the savings. If you save for a child age 17 and under, the federal government also puts money into the RESP. As the individual is ready begin his or her studies, the money can be taken out of the RESP and open for up to 36 years. It is important to know that they are fees associated with having RESPs.
7. Registered Retirement Savings Plans (RRSPs)
Registered Retirement Savings Plans (RRSPs) are usually reserved for individuals that would to save for their future after the age of 65. Once you are employed, you are permitted to contribute up to 18% of income earned in the previous year. To encourage you to contribute, the federal government does not tax you for the amount invested into your plan until you withdraw the funds or when you are the age of 65. In fact, there are situations where the government will provide you with a tax fund to encourage saving more in the future. It is vital to remember that a RRSP is a tax deferral tool meaning that you are postponing paying taxes to government until your funds are made available to you so be prepared to pay the taxman in the future.
Please Note: Not all saving options may be suitable for all individuals depending on age and income. It is best to investigate each option and ask a financial advisor at your bank.