Save for your child's education
How to lower the cost of higher education.
Like all parents, you want your child to have a successful future, one that's filled with exciting opportunities and promising possibilities. You can take a step in the right direction by opening a Registered Education Savings Plan.
You organize the lessons, juggle family schedules and make time for homework – all to prepare your child to take advantage of life's opportunities. But saving for your child's post-secondary education takes planning, too. Experts estimate costs of $65,000 or more for a four-year university degree, including tuition, fees and living expenses. Setting up a Registered Education Savings Plan (RESP) today is one of the smartest moves you can make. Here's why.
RESP – a Really Excellent Savings Program.
RESP funds grow tax-free until your child is ready to go to college, university or any other eligible post-secondary institution. The money that is then withdrawn is taxable, but at your child's lower rate.
There are several types of RESP plans. Under the family plan, if your child decides not to attend, the RESP can be transferred to another child for use when he or she continues on. If that's not in the cards either, it can be transferred into your RRSP, provided you have enough contribution room.
A significant benefit of the RESP is the available government grants. With the Canada Education Savings Grant (CESG), the federal government will pay 20% of your contribution up to $500 for each child each year, to a maximum of $7,200 over the life of the RESP. That's an automatic 20% return on your investment!
BC Training and Education Savings Grant
There is also the BC Training and Education Savings Grant (BCTESG) which will provide $1,200 for your child's RESP with no matching or additional contribution required on your part. The main caveat being, the RESP must be opened before the child turns seven years old.
How much do you need to save?
There are many factors that will affect how much and how quickly you need to save for post-secondary education. These include:
- How many children you're saving for
- The age of your children
- Where the student will live – at home or on/off campus
- If they will be able to supplement costs through part-time work
- The potential for student loans, scholarships or bursaries
- Additional costs involved for the particular program of study, such as engineering or medicine
A financial advisor can help you map out a savings approach, taking into consideration the government grants. You can also check out our RESP calculator to help you plan.
We suggest that at a minimum, you contribute $2,500 to your child's RESP each year to take advantage of the full $500 CESG from the government. The simplest way to achieve this is to set up a convenient pre-authorized contribution of about $208 a month.
Savings growth: RESP vs. non-registered savings.
If you're still in doubt about the growth potential of an RESP, let's crunch some numbers.
Let's say you invest $2,500 a year for 15 years using term deposits that offer, on the generous side, a 3% return. At the end of the 15 years, you'll have about $46,000. Not bad. If you take it one step further and invest in a combination of mutual funds as well as term deposits, you may generate a return of close to 5%, and you'll have just over $54,400. Even better.
However, if you put that same money in an RESP (and also have a portfolio that combines term deposits and mutual funds for an average 5% rate of return) you'll get the $500 grant each year. That $500 will elevate your savings at the end of 15 years to $65,300 – an increase of almost $11,000!
Calculating the cost.
Our RESP Calculator will help you run the numbers.
The easiest way to start is with a simple savings account, such as our RESP Growth Savings Account. With a premium interest rate, it's an ideal way to accumulate funds until you have enough to invest in other higher growth investments. You can start with as little as $50 per plan per month* which can be automatically transferred from your account on a schedule that suits you.
If you receive the federal government's Universal Child Care Benefit ($100 per month for each child under six) you may want to consider investing this in your child's RESP. The Universal Child Care Benefit is a taxable benefit so it would be prudent to talk to your financial advisor about the best options for you and your tax situation.)
When you invest in an RESP, you're not only taking advantage of tax-deferred savings, you're also receiving grant money from the government, so the earlier you start, the more you take advantage of accumulated growth.
Managing your RESP.
Once your savings reach a certain level, you can manage your RESP portfolio just as you would your RRSP. Choose from traditional term deposits that guarantee both rate and principal, as well as other equity investing options. You have more choices than ever before to ensure your money is working hard for your child's future.
We can get you started and help you grow your RESP investment. Your financial advisor can offer expert advice on a range of flexible investment options and make saving easy through convenient, pre-authorized contributions. Whatever strategy you decide upon, be sure to start today. We all know how quickly children grow up!