Best RRSP Investments for Canadians In 2022
Created by the federal government in 1957, RRSPs (Registered Retirement Savings Plans) continue to be a key retirement savings vehicle for millions of Canadians.
RRSPs have two key benefits; contributions are tax-deductible, and the funds remain fully tax-sheltered until they are withdrawn. You can defer taxes further by converting your RRSP to an RRIF (registered retirement income fund) after you retire.
But what do you do with the money sitting in your RRSP? With so many options, it can be downright difficult to pick the right investment. If confusion around RRSP investing sounds like a familiar problem, you’ve come to the right place.
In this article, I’ll show you some of the best ways to invest your RRSP, regardless of your age or risk tolerance. I’ll also explain the basics of asset allocation to help you make the best investment decision for your RRSP.
The Best RRSP Investments In Canada for 2022
Best RRSP Savings Account: EQ Bank
Best for GIC RRSPs: Oaken Financial
Best Robo-Advisor RRSP: Wealthsimple Invest
Best for Stocks & ETFs: Questrade
Best for Beginners: Wealthsimple Trade
Best RRSP Savings Account
An RRSP Savings account offers safety investors a principal guarantee, with a very modest rate of return. Because there is little potential for growth, an RRSP savings account should only be used as a place to temporarily park funds that you plan to invest elsewhere, or that you plan to withdraw from your RRSP in the near future.
While all of Canada’s big banks offer RRSP savings accounts, their interest rates are among the lowest you will find. Your best bet is to open a high-interest RRSP savings account with a Canadian online bank.
And while there are several good RRSP savings accounts to pick from, EQ Bank is our Top Pick for 2022.
Best RRSP Savings Account: EQ Bank
What We Like: Consistently high-interest rates on savings, and convenience
Key Features:
- 2.50% RRSP Savings Interest (as of November 20, 2022)
- Consistently at or near the top of savings interest
- Open an RRSP account online within minutes
- Setup automated contributions
- No monthly fees
- No transaction fees
- No minimum account balance requirement
- Deposits are protected by CDIC
Summary: EQ Bank isn’t the only Canadian financial institution offering attractive interest rates on RRSP savings, but they are always at or near the top. When you combine that with their no-hassle account signup process and the fact that they don’t charge fees of any kind, EQ is an easy choice for our Top Pick for 2022.
Honourable Mention: Manitoba-based Steinbach Credit Union lacks the brand awareness of EQ, but their RRSP tiered-savings rate of up to 3.50% is hard to beat.
Get Started with EQ Bank Today
Best for RRSP GICs
If there’s been any silver lining to the runaway inflation we’ve experienced in 2022, it might be the sharp increase in GIC and savings account returns. Of course, everything is relative.
GICs (Guaranteed Investment Certificates) are similar to savings accounts in that they offer investors a principal guarantee. GIC returns are often favourable to savings accounts, however, because they require the investor to lock in funds for a predetermined period of time.
Most guaranteed investment certificates require a minimum investment of $500 or $1000 and cannot be pre-encashed without a penalty. For 2022, our Top Pick for GIC RRSP is Oaken Financial.
Best RRSP GICs: Oaken Financial
What We Like: High-interest rates on all GIC terms (1-5 years)
Oaken Financial Annual GIC Interest Rates (as of November 20, 2022)
1 Year: 5.10%
18 Months: 5.15%
2 Years: 5.15%
3 Years: 5.10%
4 Years: 4.95%
5 Years: 5.00%
Summary: Oaken Financial is a division of Home Trust, Canada’s largest independent trust company. You can open an RRSP account with Oaken in minutes by using their online form.
You’ll need to provide your personal information, email address, and SIN number. GICs are straightforward products, but Oaken offers some of the best interest rates on all GIC terms ranging from 1 to 5 years.
Honourable Mention: Motive Financial offers 5.20% interest on GIC terms between 5 and 10 years.
Best Robo-Advisor RRSP
Robo Advisors offer hands-off, automated investing at a very low cost. Robo advisors have exploded in popularity in recent years, but no company has seen more success than Wealthsimple. Canada’s largest robo-advisor holds more than $15 billion in assets under management.
Best Robo Advisor RRSP: Wealthsimple Invest
What We Like: One-stop shop for low-cost investing, Halal and Socially Responsible investment portfolios.
Summary: You can open a no-fee bank account, trade stocks, and file your taxes with Wealthsimple. But at the heart of it all is Wealthsimple Invest, their low-cost robo-advisor platform. The annual management fee is 0.50% for $1 to $99,999, and 0.40% for $100,000+.
And just because a robo-advisor uses AI technology to assign you a portfolio, doesn’t mean that you’re on your own. Wealthsimple advisors are available anytime if you have questions about your investment strategy.
Honourable Mention: Questwealth Portfolios
Get Started with Wealthsimple Invest Today
Best for Stocks and ETFs
A discount brokerage account is the most affordable solution for long-term growth investors who want to purchase individual stocks or ETFs (exchange-traded funds). It’s also ideal for US and international stocks, bonds and REITs, all of which can be held in an RRSP.
There is no shortage of online brokers available to Canadians, but here at MapleMoney, our top choice is Questrade, for its combination of low fees and a rock-solid trading platform with mobile app functionality.
Best for Stocks and ETFs: Questrade
What We Like: Low-fee stock trades, commission-free ETF purchases.
Summary: Questrade is a top choice for thousands of Canadian investors for its low fees and ease of use. There’s no need to visit a brick-and-mortar location or meet with a bank advisor. You can open a Questrade RRSP account online within minutes, and start investing shortly thereafter. Stock trading fees start at $4.95, and ETF purchases are free. Unlike many of its competitors, Questrade does not charge an annual fee for registered accounts, ie. RRSP, TFSA.
Honourable Mention: QTrade’s trading fees are higher than Questrade’s but lower than the big bank brokers. Their standard fee is $8.75 for stocks and ETF trades, but they offer a select number of ETFs for free.
Get Started with Questrade Today
Best for Beginners
If you’re new to investing but you want to trade stocks, ETFs, and mutual funds, you’ll need to open an account with an online broker. What you don’t need, however, is a complex investing platform with all the bells and whistles. Wealthsimple Trade is a mobile-only trading platform that allows you to execute trades from your smartphone.
Best for Beginners: Wealthsimple Trade
What We Like: Intuitive, mobile investing platform with free trades
Summary: Wealthsimple Trade is the online trading platform of Canada’s leading robo-advisor, Wealthsimple. It’s not well suited for sophisticated investors, due to its lack of a desktop trading platform and subpar research tools. However, it shines in one key area. No account fees, and no trading fees whatsoever. This makes it an ideal RRSP option for new investors looking for a cost-effective way to invest in the stock market.
Honourable Mention: TD Easy Trade also targets new investors, but free stock trades are limited to 50 per year.
Get Started with Wealthsimple Trade Today
Before You Invest – Understanding Asset Allocation
Before you invest in your RRSP, it’s essential to have a basic understanding of asset allocation, and why choosing the proper asset allocation model may be the most important investment decision you make.
Asset allocation separates investment types into different categories, with each having its own unique objective. These categories are generally known to be safety, income, balanced, and growth.
An asset allocation model may include one or more of these asset classes in various weightings. An investor’s recommended asset allocation takes into account several factors, including investment time horizon and personal risk tolerance. The following is a breakdown of each asset class.
Safety
The safety component of an asset allocation model focuses on the preservation of capital. Investors in this asset class are less concerned with returns. Instead, the focus is on ensuring that the principal balance of an investment does not lose value.
Safety investments mostly comprise principal guaranteed products such as savings accounts and GICs, or money market instruments. Because of the importance of diversification, safety investments can be included in various asset allocation models, with the weighting dependent upon the investment objective of the portfolio.
Income
The income component of the asset allocation model focuses on investments that provide a steady, reliable income for investors. Unlike safety investments, income assets are not principal-guaranteed. However, they lack the volatility of long-term equity investments.
The income asset class is primarily made up of government and corporate bonds, and real estate investments, in the form of Real Estate Investment Trusts (REITs). Generally speaking, the closer an investor is to retirement, the larger the income component of their portfolio will be.
Growth
The growth asset class is focused purely on long-term capital appreciation through the purchase of equities. An investor may choose to buy the stock of individual companies, or opt for pooled investments, such as mutual funds or ETFs, to get instant diversification. An investor with a heavy weighting in the growth sector has a long investment time horizon and a moderate to high level of risk tolerance.
Balanced
A balanced asset allocation is one that includes a mix of income and growth investments. Because these components are not correlated i.e.: when stocks go up, bonds generally decline, a balanced asset allocation offers the potential for growth with moderate levels of risk. A large segment of investors will fall into this asset class, which is ideal for those with a medium to long-term investment time horizon.
Income Splitting With a Spousal RRSP
In addition to contributing to your own RRSP plan, you and your spouse can set up a spousal RRSP, to take advantage of eventual tax savings through income splitting. To make the best use of a spousal RRSP, the account would be opened in the name of the spouse who will have the lower income at retirement, while the higher-income earning spouse will be the one making contributions to the plan.
At retirement, the funds will be taxed in the hands of the plan holder (lower income earner), reducing the tax burden when the funds are drawn out as income. You can contribute to your spouse’s RRSP plan in addition to your own, providing that you stay within your RRSP contribution limit.
Home Buyers Plan (HBP)
There are two ways that investors can withdraw from their RRSPs without incurring a penalty; via the Home Buyers Plan (HBP) and Lifelong Learning Plan (LLP). The Home Buyers Plan is designed to make it easier for first-time home buyers to purchase a home by allowing them to withdraw up to $35,000 from their RRSP to use towards the down payment or other related costs. The funds withdrawn are not taxed, but must be paid back into the plan in equal installments over a 15-year period.
Lifelong Learning Plan (LLP)
Similar to the HBP, the Lifelong Learning Plan allows Canadians to borrow from their RRSP to help pay for their post-secondary education. You can withdraw up to $10,000 per year, up to a maximum of $20,000. The funds can be used to pay for your education or your spouse’s, and you have ten years to repay the amount in full, into your RRSP. With both the HBP and LLP, you will be penalized if you do not adhere to the repayment guidelines.
Common RRSP Misconceptions
When it comes to personal finance, people’s opinions are often absolute. For example, you may have heard someone say that it’s always better to pay down your mortgage before investing in RRSPs. While this may be true in some situations, it’s certainly not always the case. Let’s take a look at a few common misconceptions surrounding RRSPs.
TFSAs: A Better Investment Than RRSPs?
Since the Tax-Free Savings Account was first introduced by the Canadian government as an alternate tax-sheltered investment vehicle back in 2009, the debate has raged as to where Canadians should prioritize their long-term savings. This is mainly due to the fact that you are not taxed when you withdraw funds from a TFSA, a key benefit.
Here at MapleMoney, we’re big fans of TFSA investing, for the flexibility that the program offers. That said, the vast majority of Canadians should also invest in RRSPs. In fact, the best solution is to contribute to both a TFSA and RRSP. Higher-income earners will benefit significantly from the tax deductibility of an RRSP, something a TFSA cannot offer.
Pay Down Your Mortgage or Invest In RRSPs
You may be wondering if it’s better to put extra money towards your mortgage principle or invest it in RRSPs to reduce your taxable income. The decision has become even more challenging given the sharp rise in interest rates in 2022.
If you have credit card debt at 20% interest, your focus should be on paying off that debt rather than boosting your RRSP contributions. On the other hand, it may be better to fund your registered retirement savings plan instead of applying extra payments to your low-interest mortgage or home equity line of credit. That is if you still have a low-interest rate on your mortgage.
For most people, their mortgage is something that they will be paying for 20 or 25 years, and, until 2022, mortgage interest rates have been low for over a decade. Ignoring your retirement savings during your working years means less potential for growth, and possibly not having enough income in your golden years.
The bottom line is that it depends on several factors. What is your mortgage rate? What are your income level and marginal tax rate? Will you have enough money to retire at your current savings level? If you’re unsure, an accountant or investment advisor can help you make an informed decision.
Understanding the RRSP Contribution Limit
By contributing to an RRSP, you can reduce your income tax owing, but you need to stay within your RRSP contribution room. Your RRSP contribution limit for 2022 is 18% of earned income reported on your 2021 income tax return. The maximum contribution limit for 2022 is $29,210, regardless of income.
Unused RRSP contribution room carries forward to future years. To find out what your available contribution room is, log in to CRA My Account or check your most recent CRA Notice of Assessment.
Why Invest in an RRSP When I’ll Pay Taxes Later?
I get it. No one likes to pay taxes. But just because your RRSPs will be taxed when they are withdrawn at retirement doesn’t mean that you shouldn’t contribute in the first place. The benefits of the upfront tax deduction, as well as decades of tax-sheltered growth, will far outweigh the taxes you’ll pay at the time of withdrawal.
Final Thoughts on RRSP Investing
Whether you are parking funds in an RRSP savings account, purchasing a GIC, or you’re ready to dive into the stock market, you have many options to choose from.
For RRSP savings, your best bet is to open an account with EQ or another online bank, due to their superior interest rates vs. the big banks. The same goes for GICs, although your local credit union may also be a solid bet.
For stocks and ETFs, I recommend an online broker, like Questrade or Wealthsimple Trade. The most important thing is to choose an asset allocation that matches your investment objectives. If you can do that, you’ll be well on your way to securing a comfortable retirement.
