Investing accounts 101
To purchase and sell securities, you need an investment account or plan to hold your cash and investments (stocks, bonds, ETFs, mutual funds etc.) You can open investment accounts through financial institutions and brokerages through their registered advisers and online.
You can use several types of accounts or plans in Canada that are broadly categorized as either “registered” (TFSAs, RRSPs, RESPs) or “non-registered” accounts for investing. Each has unique features and considerations, which you can learn more about in this section.
Considerations before opening an investment account
Your investment goals
Depending on your investment goals, some accounts are more ideal than others to help you meet them. If you’re investing for your retirement, you might opt for an RRSP account, whereas if you are saving for your child’s education costs, you might choose an RESP account that includes government grants based on how much you contribute to the account.
Fees and charges
Different investment accounts through different financial institutions, dealers and brokerages will have different fees and charges you will be paying when you invest. You may find your investment account includes fees and charges for making transactions and or management fees. Since 2016, securities laws known as Client Relationship Model 2 (CRM 2) require investment advisory firms to provide a detailed annual report about the operating, transaction, and related fees and charges to all of their clients.
What the account can hold
Conditions may apply as to what types of investments you may be able to purchase within your account. If you choose to work with a financial adviser, it is also beneficial to understand what they can trade. Some advisers are limited to trading mutual funds, for example, and may be unable to buy or sell the investments you want.
Opening a non-registered investment account
Non-registered investment accounts generally have no restrictions on how much you can contribute or withdraw from the account. Interest income in a non-registered account is taxed at your marginal tax rate, but includes special considerations for dividends and capital gains. Dividends from your investments are taxed on a gross amount but receive a dividend tax credit based on the province you live in. Capital gains in a non-registered account are taxed on a net basis, with your marginal rate paid on 50% of its value. Finally, any interest income generated in your non-registered account is fully taxable at your marginal tax rate. Visit the Alberta Government website to learn about the dividend tax credit for Albertans.
Understanding registered accounts
Along with non-registered accounts, Canadians also have access to accounts and plans registered with the Canadian Revenue Agency that have unique features from one another to help you save or invest towards your financial goals. Learn more about these accounts and plans below:
First Home Savings Account (FHSA): An account used for holding savings and investments for the purpose of purchasing your first home.
Tax-Free Savings Account (TFSA): An account that allows you to save or invest a defined amount tax-free each year throughout your life.
Registered Retirement Savings Plan (RRSP): An account designed to reduce the income tax on the money you contribute towards your retirement.
Registered Education Savings Plan (RESP): A plan that enables you to maximize savings for a child’s education with tax-deferred investment growth and government grants and bonds.
Registered Retirement Income Fund (RRIF): An account designed to enable you to generate a steady source of income during your retirement.
Registered Disability Savings Plan (RDSP): A long-term savings plan designed to help those who qualify for the Disability Tax Credit
