Best RESP Providers in Canada: Where to Invest for Your Child’s Education in 2021
In Canada, a college degree has never been more expensive. According to Forbes Wealth Blog, the average cost of post-secondary education is around $19,500 per year, and tuition costs have outpaced inflation nearly 3 to 1. It’s no wonder parents worry about whether or not they will be able to afford to send their kids to college. The key is to start saving early through a Registered Education Savings Plan, or RESP. But with so many providers to choose from, where is the best place to invest your child’s RESP?
What Is An RESP?
The term, RESP, stands for Registered Education Savings Plan. As the name suggests, it’s a government-sponsored plan that makes it easier for parents to save for a child’s post-secondary education.
RESPs are similar to other registered accounts, like RRSPs, TFSAs, and RRIFs, in that there is a tax-sheltered component. When an investment can grow tax-free, it’s much easier to accumulate a significant sum over, say, 10 or 20 years.
In the case of RESPs, the benefits are even more significant. The government uses grants built into the plan to match a parent’s contribution. The primary grant is called the Basic Canada Education Savings Grant (Basic CESG). It’s a 20% match on annual contributions up to $2,500, to a maximum of $500 per child. Two other incentives, the Additional CESG and Canada Learning Bond (CLB), are income-tested and available to eligible, low-income families.
The government has an underlying motive in supporting your child’s education. When parents can afford to send their kids to college or university, the result is a healthier, more educated society, lower poverty, and stronger economic growth.
RESP Contribution Limits
There is no ceiling on annual RESP contributions per beneficiary. Parents can contribute however much they like, but the Basic CESG 20% grant only applies to the first $2500 of contributions each year (max $500.) There is a lifetime contribution limit, however, of $50,000 per beneficiary.
If you exceed the $50,000 contribution limit during the life of the plan, CRA will charge a monthly penalty of 1% until the contribution limit is brought back within guidelines. This is similar to the way the government penalizes overcontributions on RRSP and TFSA accounts.
Understanding How the RESP Savings Grants Work
As I touched on earlier, the Canadian government offers three savings incentives for RESP accounts: The Basic Canada Education Savings Grant (CESG), the Additional CESG, and the Canada Learning Bond (CLB). Let’s take a closer look at each one:
The Basic CESG is a 20% match per beneficiary on RESP plan contributions up to $2500 per year. Thus, the maximum grant is $500 per year. The grant is paid on contributions until the year the child turns 17.
For your child to be eligible for the basic RESP, they must meet the following criteria:
- resident of Canada
- Must be included as a beneficiary in the RESP plan
- Must have a valid SIN
Note: If you are opening an RESP for your child when they are 16 or 17, you’ll need to meet two additional criteria:
- Contribute at least $2000 to an RESP before the end of the year in which they turn 15. The funds must still be in the account.
- There must have been an annual contribution made (min. $100) in the four years before the year in which your child turned 15. Those funds must also still be in the account.
The Additional CESG is an income-tested grant available to low-income caregivers who qualify. This criterion means that eligibility can change year to year. Here’s how it works for 2021:
- Additional CESG up to $100 (20% of Basic CESG) if the caregiver’s income is less than $49,021;
- Up to $50 if the caregiver’s income is between $49,021 and $98,040
Canada Learning Bond (CLB)
Unlike the CESG, a grant based upon the percentage of RRSP contributions, the CLB does not require that personal funds be contributed. Eligible children from low-income families can receive up to $2000 in CLB during the life of the RESP. This includes $500 in the first year of eligibility and $100 every other year the child is eligible.
Withdrawing from An RESP
The first withdrawal from an RESP account usually happens when the beneficiary attends college or university and needs to pay for tuition. This is called an Education Assistance Payment, or EAP. Proof of enrollment in a post-secondary institution program is required for an EAP withdrawal, and the funds will be paid directly to the beneficiary.
EAP withdrawals are capped at $5000 for the first 13 weeks in a full-time program. Part-time students withdrawals are capped at $2500 during the initial 13 weeks. Once the period has expired, plan holders may access the remaining funds in the RESP account.
Individual vs. Family RESP PLan
You can open an RESP account as an individual or family plan. There are some key differences between the two:
Individual RESP Account
- Opened by anyone, providing they have the child’s SIN
- Only one beneficiary permitted at any time
- Planholder can name a beneficiary at any age
- Ideal for single-child families
- Contributions can be made for up to 31 years after the plan is open
Family RESP Account
- Planholder can include more than one beneficiary in the plan
- Ideal for families who plan to have more than one child
- Can only be opened by parents, grandparents
- Beneficiaries must be related by blood or adoption
- Planholder must add beneficiaries before age 21
- Planholder can transfer amounts in the plan between beneficiaries
- Planholder can make contributions until the beneficiary turns 31
There are several critical benefits of RESPs that make it a lot easier to save for your child’s education, starting with the various grants the government offers.
When the government offers you free money, you take it. With the Basic CESG, the government gives RESP plan holders an immediate 20% return on their initial contribution, up to $500 per child, per year. Just think of the compounding effects of this windfall over 10 or 20 years. Families who qualify for the Additional CESG and CLB benefit even further.
RESPs offer the same tax-sheltered growth as other registered plans, like RRSPs and TFSAs. In other words, the income earned is not subject to taxation until years down the road, when the funds are withdrawn.
Favourable Taxation Rules at Withdrawal
Assuming your child will pursue post-secondary education, the plan’s income will be taxed in their hands. Unless your 18-year old is a budding NHL superstar or a YouTube sensation, they’re going to pay less tax on the Educational Assistance Payments (EAP).
There are plenty of options when it comes to investing RESP funds. You can open a self-directed account and buy and sell stocks, bonds, or ETFs. You can invest with a robo-advisor, purchase mutual funds, or plain, old GICs.
RESPs weren’t always as flexible as they are today. With a family plan, you can have multiple beneficiaries under the same account and transfer funds between them depending on their post-secondary aspirations. If your child opts out of post-secondary education, you can eventually withdraw the principal or move the money into your RRSP. If you’re unsure what will happen, you can keep the funds in the account for 36 years, so there’s no hurry to decide.
For all of the benefits, there are some potential disadvantages to investing in an RESP. For example, what happens if your child decides not to go to school? While you still have options, the RESP account can become more of a burden than anything.
Potential Loss of Grant Money
If your child does not pursue post-secondary education, the government will claw back all of the grant money you received in the RESP account over the years. That includes the 20% CESG. In other words, you lose the most significant benefit for opening an RESP account in the first place.
Withdrawal Process Can be Cumbersome
Making an RESP withdrawal isn’t as simple as logging into your online banking or brokerage account and clicking a few buttons. Not even close. Because EAPs require enrollment confirmation, you either have to visit the RESP provider in person or send in documents and wait for approval before you can receive the funds.
Beware of the Over-Contribution Penalty
While most parents don’t reach the lifetime RESP contribution limit of $50,000 per child, there are penalties for going over the limit, so you have to be careful. The government will charge 1% per month on the over-contribution amount until you bring it back under the limit.
Challenging to Predict How Much You’ll Need
When you’re saving for your retirement, the math is relatively easy. The more you can save, the better. You don’t hear too many people complaining that they have too much money saved when they retire. But with an RESP, it’s hard to know how much to save because you don’t know what your two or three-year-old child will want to do with their life when they finish high school. Not everyone wants to be a doctor or an engineer. So, there is the risk of focusing too much on the RESP and not needing the funds later.
What You Need to Open an RESP
It’s relatively easy to open an RESP account, no matter where you deal. The key information is a Social Insurance Number (SIN) which will need to be provided for both the beneficiary and the subscriber (parent or guardian).
Once the plan is open, you will need to decide how to invest the funds and how often you want to contribute. You can always make changes along the way.
Best RESP Providers In Canada
Deciding where to open an RESP account can be a challenge – there are so many options. Many Canadians will choose the bank or credit union where they hold the majority of their accounts. This can be advantageous as it lets you keep everything under one roof. Also, if you have questions, it’s easy to visit a bank or credit union branch and deal in person.
But traditional RESP providers have their limitations. For one, bank advisors can usually only offer mutual funds or guaranteed investment certificates (GICs) as an investment option. GICs are seldom advantageous due to their limited growth potential, and when it comes to fees, mutual funds can be very costly.
Here at MapleMoney, we’re big fans of low-fee investment vehicles offered by robo-advisors and online brokerages. With that in mind, here are our top four choices for your RESP account.
1. JustWealth RESP
JustWealth is a Canadian robo-advisor. They offer a unique product known as Education Target Date Portfolios. You set the investment time frame, say 18 years. The portfolio automatically adjusts the asset mix over the years, accounting for changes to risk levels as you get closer to the maturity date (high school graduation.) JustWealth may not be a familiar name, but it’s always at or near the top of the list of Canadian RESP providers.
As a robo-advisor, JustWealth is extremely cost-efficient, with management fees of only 0.50% on portfolios up to $500,000. On the downside, there is a minimum fee of $2.50 per month for RESP accounts, and their ETF portfolios have an additional MER of 0.20%. Still, the combined cost is a far cry from equity mutual funds that can charge MERs of more than 2%.
- $0-$500,000 – 0.50%
- Over $500,000 – 0.40%
Additional ETF MER of 0.20%
What We Like:
- Target portfolios ensure the proper asset mix
- Low fees (0.50% + 0.20% MER on ETFs)
- No fees for deposits or withdrawals
- No account minimum
- Plan holders are assigned a portfolio manager
- Hands-off investing with a robo-advisor
Learn more about JustWealth.
2. Questrade RESP
Questrade is our top-rated online brokerage here at MapleMoney. Their combination of low fees, a solid trading platform, and mobile app, and excellent customer service, are pretty tough to beat. When it comes to RESP investing, they offer a managed portfolio solution with their Questwealth Portfolios, or you can do your own investing through their self-directed channel.
The managed solution helps you choose a portfolio that aligns to your investment objective, time horizon, and risk tolerance, automatically rebalancing it as you go. Management fees are only .25% on account balances between $1,000 and $100,000. If you go the DIY route, you can take advantage of Questrades’ free ETF purchases. Unlike JustWealth, there is a $1000 minimum investment amount.
- $0-$100,000 – 0.25%
- Over $100,000 – 0.20%
- Stock trades as low as $4.95
- No fee ETF purchases
What We Like:
- Low-fee Questwealth Portfolios
- No-fee ETF purchases
- Government grants are automatically applied
- Easy online application process
- A minimum balance of $1,000 is required
Learn more about Questrade.
3. Wealthsimple RESP
Wealthsimple is Canada’s largest robo-advisor, and they’ve earned a reputation for making investing, well, simple. Like JustWealth, they provide a low-cost robo-advisor solution – fees range between 0.4% and 0.50%, depending on the portfolio value. If you’re looking for a stress-free, hands-off investing solution for your child’s RESP, Wealthsimple is worth a look.
- $0-$100,000 – 0.50%
- Over $100,000 – 0.40%
What We Like:
- Low-fee robo-advisor ETF portfolios
- Account signup is fast and simple
- SRI portfolios available
- Support from human advisors is available
Learn more about Wealthsimple.
4. CI Direct Investing
Like Wealthsimple, CI Direct Investing also offers RESP accounts through a robo-advisor platform. Formerly known as Wealthbar, their fees are the highest among our top four but are still relatively low compared to a typical mutual fund RESP. Similar to Questrade, a minimum balance of $1000 is required.
CI Direct Investing Fees
- $0-$150,000 – 0.6%
- $150,000-$350,000 – 0.4%
- Above $350,000 – 0.35%
Additional MER of 0.16% – 0.25%
What We Like:
- Robo-advisor simplicity
- Dedicated financial advisor available
- SRI portfolios available
- Minimum $1000 balance required
- Rebate available for transfers from another institution
Learn more about CI Direct Investing.
A Note About Group RESP Plans
If you’re shopping for an RESP, there’s a good chance you’ve stumbled upon Group RESPs, also known as Scholarship Funds. A Group RESP is very different from a regular RESP. Group RESPs are controlled by a company investing on behalf of hundreds or thousands of parents. The funds are pooled together, and when it’s time for the money to be withdrawn, everyone gets their share.
But there are several reasons you should never sign up for a Group RESP. For starters, the fees are outrageous. This couple paid more than $11,000 in fees against $50,000 in contributions. Also, there is very little flexibility. You, as the parent, have no control over how the money is invested. And if you want to get out? With a Group RESP, you can’t transfer to another provider with your contributions and grant money intact. It’s kind of like the mafia – you can never leave. If you do, you might lose everything.
This is how Group RESPs operate. They know that a certain percentage of families will bow out of the plan over time, paying stiff penalties in the process. The money they leave behind stays in the pool for the investors that remain.
The Bottom Line on Canada’s Best RESP Providers
No matter where you decide to set up your child’s RESP, the most important thing is that you’re saving for their education. The sooner you get started, the sooner you can begin collecting the government grants and watch your investment grow. The four RESP providers I’ve covered in this article are all excellent choices. They offer plenty of investment options, an asset allocation strategy, and low management fees. You can choose a robo-advisor portfolio or opt for a self-directed RESP.
I like JustWealth overall for my money – their Education Target Date Portfolios are perfect for RESP investing. Questrade has the lowest fees, but the $1000 account minimum won’t be for everyone – the same goes for CI Direct. Wealthsimple gets the highest marks for simplicity.