As Canadians navigate the challenges of a higher cost of living, many are finding it difficult to contribute to their Registered Retirement Savings Plan (RRSP) this year. A recent survey by Edward Jones Canada revealed that one in ten of the 1,528 people surveyed reported being unable to invest in their RRSPs at all.
With financial institutions and brokerages offering enticing bonuses to encourage Canadians to transfer their RRSPs, is it worth taking advantage of these promotions? The idea of a substantial transfer bonus can seem appealing, but there’s more to these offers than meets the eye.
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A Transfer Bonus Could Offset Missed Contributions
A transfer bonus might seem like a great way to make up for the contributions you’ve missed out on, especially if the cash rewards are reinvested in your RRSP. However, as Gaurav Singh, Senior Vice President of Retail Banking at Tangerine Bank, points out, it’s crucial to evaluate more than just the headline offer.
Clarify Your Financial Goals and Risk Tolerance
Before jumping at a transfer offer, Singh advises Canadians to first establish a clear understanding of their financial goals. It’s essential to prioritize your goals, whether they’re short-term, medium-term, or long-term, so you can determine how they align with a potential new institution.
Additionally, knowing your risk tolerance is vital. If the investment options at the new institution don’t suit your appetite for risk, the transfer bonus may not be worth it in the long term.
Financial planner Brenda Hiscock from Objective Financial Partners agrees. She stresses that investors looking to move assets for a transfer bonus should have their goals in mind, particularly if they plan to withdraw funds from their RRSP in the near future. “If your primary goal is long-term growth, then a transfer bonus might make sense. But if you’re planning to use the funds soon, it may not be as valuable,” she explains.
Look at the Big Picture, Not Just the Bonus
While a financial institution may be offering an attractive transfer bonus, it’s important to consider other aspects before making a move. Singh recommends delving into the fine print to understand any hidden fees that could eat into the potential gains. These may include fees related to buying and selling investments post-transfer or currency conversion fees if you invest in non-Canadian assets.
Singh also emphasizes the importance of evaluating the broader picture when it comes to your financial needs. Does the competitor offer products such as exchange-traded funds (ETFs) that suit your portfolio? What about other banking products that complement your RRSP? Understanding how the institution’s overall offerings match your financial objectives can help you decide if the transfer bonus is really worth it.
“If you’re going to transfer your RRSP, ask yourself: Does this new institution offer products that meet your needs? Do they have solutions for non-registered accounts, no-fee checking accounts, or attractive savings rates?” Singh suggests.
DIY Investors vs. Advisors: Know What Works for You
Hiscock believes that RRSP transfer bonuses can be a smart move for DIY investors, but they may not be the best fit for those working with a financial advisor. She warns against chasing promotions as a general rule, but acknowledges that there are times when these offers can be beneficial.
DIY investors should also ensure that the assets they currently hold can be transferred seamlessly to the new institution. If the current institution doesn’t allow for a direct transfer of stocks, bonds, or ETFs, the promotion may not be worth it.
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The Fine Print: What You Need to Watch Out For
When considering transferring your RRSP, Hiscock advises paying close attention to the specifics of the offer. For example, many institutions charge transfer fees, typically around $150 per account. It’s important to confirm whether the receiving institution will cover these fees or if they will be deducted from your transfer bonus.
Another aspect to consider is the ceiling on the bonus itself. Some offers may cap the amount of cash they provide based on the size of your transferred assets. For instance, Wealthsimple is offering a two percent transfer bonus, but it’s spread out over two years. While this bonus is substantial, Hiscock notes that it won’t provide immediate benefits for contributions made in the current year.
“While there’s no immediate benefit, there are cases where these promotions make sense, but be aware of the long-term impact,” she advises.
Conclusion Weighing the Costs and Benefits
Before jumping on an RRSP transfer offer, it’s essential to look beyond the attractive bonus and consider how well the new institution aligns with your financial goals, investment preferences, and risk tolerance. Understanding the full picture—including any hidden fees, potential benefits, and the institution’s broader offerings—can help you make an informed decision.
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