How to invest money in Canada: Best investments in Canada

Deciding how much to invest isn’t simple, but your age is a good place to start.

A Fidelity study² estimates that you need 10x your annual income by age 67 to maintain your lifestyle in retirement. Here’s a breakdown by age:

A general rule is to invest 10% of your gross income per year for retirement.

But this depends on your income, too. Young investors living on a budget may only be able to afford to invest 3% to 5% of their gross income. Whereas late starters with higher incomes can be more aggressive, investing 15% to 25% of their salary to make up for lost time.

Obviously, if you start investing early, your money will have more time to compound and grow. If you’re in your 20s, you have time on your side and can start investing with very little money. For instance, an initial investment of $4,000 at age 23 may balloon to as much as $522,576.11 in 30 years (assuming 8% growth compounded monthly).

These age targets are designed to help ensure that your retirement savings, combined with government benefits like the Canada Pension Plan (CPP) and Old Age Security (OAS), can replace a significant portion of your pre-retirement income, allowing you to maintain your standard of living.

Here’s the million-dollar question: how much risk are you willing to take?

Investing is a lot like choosing a theme park ride. Some people love the heart-pounding drops of a roller coaster, while others prefer the steady, predictable spin ferris wheel. Your risk tolerance determines which ride you're comfortable taking with your money.

Every investment has a level of risk, and generally, higher risk comes with the potential for higher returns.

But not everyone has the stomach — or the timeline — for the wild ups and downs of the market.

Here’s a look at different risk levels through a risk tolerance scale:

• The park bench investor (low risk): If market swings make you queasy, you might prefer Guaranteed Investment Certificates (GICs) or high-interest savings accounts. The returns are low (1-3%), but your money is safe.
• The ferris wheel investor (moderate risk): Bonds are a steadier ride. They help cushion your portfolio during downturns, offering stability when stocks take a dip.
• The roller coaster investor (higher risk): Stocks are where the real action happens. The market has ups and downs—sometimes stomach-dropping crashes—but over time, it has historically delivered 9-10% annual returns.
• The bungie jumper (very high risk): Cryptocurrency and speculative stocks can double your money or cut it in half overnight. Think of Bitcoin’s 90% surge during COVID, followed by a 40% crash just months later.

So, how do you decide what kind of investor you are?

Ask yourself:

• Does watching your investments drop make you panic, or are you okay with a long-term ride?
• Do you need access to your money soon, or can you leave it invested for decades?
• Are you building wealth gradually, or are you swinging for the fences?

The key is finding an investment strategy that lets you sleep at night while still growing your wealth.

Investing is a balancing act. The goal is to build a “risk-appropriate portfolio,” meaning a set of investments that match your risk tolerance. But how do you determine your risk tolerance?

1. 1.

   Your investment style should match your comfort level, financial goals, and timeline. If you’re unsure, a balanced approach — mixing low-risk and high-risk investments—can help smooth the ride. And if you’d rather not think about it, a robo-advisor can do the heavy lifting, automatically adjusting your portfolio based on your risk tolerance.

2. 2.

   The rule of thumb is 100 minus your age. When you're young, you have a much longer time horizon than when you're older before you hit retirement. To set a risk level, you can use this simple formula of 100 minus your age. For example, if you're 20, you'd be invested in 80% stocks and 20% bonds whereas if you're 45, you'd have a portfolio that consisted of 55% stocks and 45% bonds. Stocks are high risk, high reward whereas bonds offer a steady and moderate return. 

Take the risk quiz

The Canadian Investment Regulatory Organization (CIRO) put together quick quiz with a few questions to help you identify what level of risk taker you are. Check out their Investor Questionaire.

Once you’ve figured out how much loss you can stomach and afford, it will shape the makeup of your investment portfolio. Specifically, how much of it to allocate towards stocks and bonds. Here are some examples:

• Low risk: Typically contains 40% stocks and 60% bonds or other fixed-income securities.
• Medium risk: Typically contains 60% stocks and 40% bonds.
• High risk: Typically contains as much as 100% stocks.

When constructing and rebalancing your portfolio, always remember that diversification is key. Never let your portfolio rely too heavily on a particular industry or bond type. A well-diversified portfolio is more sustainable and hedges you against unforeseen changes in the economy.

If you have no clue or your eyes are glazing over, don’t worry. There’s an easy solution. Just hand over the task to a robo-advisor.

A robo-advisor is a digital investment platform that can build a balanced investment portfolio to match your risk tolerance and goals. With a robo-advisor like Wealthsimple, all you have to do is answer an online questionnaire, and it will put together a risk-appropriate, diversified investment portfolio. It also does the work of managing your portfolio.

Related read: Asset classes: Everything you need to know

Get started with a robo-advisor

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Next question: how hands-on do you want to be with investing?

• With a passive investing approach, you’re buying the entire stock market, which will deliver average market returns minus a small fee charged by index funds or ETFs. It’s the “set it and forget it” approach. You’re stashing your cash into an investment portfolio and leaving it there for the long term.
• An active investing approach means hiring a fund manager (in a mutual fund or ETF) to actively manage your portfolio and try to beat a benchmark, but it means paying more in fees. Alternatively, you can act as your own fund manager and buy your stocks  using an online brokerage.

Related reads: Active vs passive investing

But which approach performs better?

The jury is out: Research strongly supports that passive investing outperforms active investing. While active investing can outperform the market over shorter periods, it is impossible to pick winning stocks with any long-term consistency and reliability. Unless you’re psychic, that is.

The bottom line: Taking a “lazy” approach to investing pays off, and timing the market usually doesn’t work. Building a risk-appropriate portfolio of low-cost, globally diversified index funds or ETFs is the best and most reliable way to achieve long-term investment returns.

It may seem boring, but “getting rich the slow way” does work. Eighty percent to 95% of active investment strategies fail to outperform their benchmark over the long term. Plus, active funds cost more than passive funds, which eats into your returns.

But we don’t want to be a total buzzkill. You might get excited by the opportunities presented by a hot new IPO or the thrills of trading cryptocurrency. That’s okay!

One way to enjoy the best of both worlds is to take a “core and explore” approach. Keep 90% to 95% of your portfolio invested in low-cost passive index funds (core) and use the remaining 5% to 10% of your portfolio to scratch your stock-picking itch (explore). Just do your research and use value investing as an approach.

Stocks are the shares (parts) of a company listed on a stock market for people to purchase.

Buying shares in a company means owning a small share of the company’s future earnings.

With ownership come voting rights and a portion of the profits earned by the company.

Most stocks today are available as common stocks. Common stocks give the holder the right to vote and elect the board members of a company (i.e., the individuals in charge of major decision-making). Common stocks also represent a portion of profits distributed by the company in the form of dividends. Payment of these dividends takes place annually or semi-annually, depending on the company’s policy.

Owning individual stocks is risky since there’s a chance the company loses money and even goes out of business in the future. That’s why it’s important for investors to diversify their portfolios by holding many different stocks.

First, the risk depends on the stock. Mature, profitable businesses with distinct competitive advantages are less risky than a small start-up that has yet to establish its profitability. 

Think of Tesla. It’s one of the most valuable companies in the world, even though it sells fewer cars than most, if not all, other automakers. Tesla would be considered a risky “growth stock,” with immense potential for gains but also a strong chance of losing money.

On the flip side, a blue-chip company like Microsoft has been around for decades and established itself as a profit-generating machine. Microsoft’s future earnings are much more predictable than Tesla’s, so investors can expect to earn steady and reliable returns.

Risk also depends on your asset allocation. For instance, investing in a single stock and nothing else leaves you with little to buffer the blow from a market crash.

Related reads: How to buy stocks

Speaking of diversification, an index fund is a mutual fund that holds all stocks in a particular market index (like the S&P 500). That’s right! An index fund tracking the S&P 500 would hold all 500 stocks in proportion to their size and track their performance. The index fund’s performance would mirror the S&P 500’s performance, minus the small fee charged by the index fund manager.

Related read: How to invest in the S&P 500

Index funds can track all kinds of markets, from Canadian stocks, U.S. stocks, international stocks, and emerging markets. You can even buy bond index funds that hold thousands of government and corporate bonds.

It depends on your portfolio allocation. An index fund that is 100% invested in stocks will still be inherently riskier than a balanced portfolio that contains bonds and/or cash. But an index fund can still lose money in a short period, such as during the coronavirus market crash.

But index investors buffer this risk through diversification. Instead of betting on a few companies, they spread out their investments and own all the companies in a particular index.

Related read: A guide to index funds.

An exchange-traded fund (or ETF) is an investment fund that lets you buy a large pool of individual stocks or bonds in one purchase. It's one of the best safe investments with high returns in Canada. 

It can track stock indexes like the S&P 500, different commodities, bonds, or a bunch of assets grouped together. ETFs trade like a standard stock on the stock market, with price fluctuations being observed as they’re traded. It distributes ownership of the whole pool of assets into a single share, ready to be traded like a common stock.

Besides making capital gains on ETFs, investors also benefit from profits distributed in the underlying ETF asset pool, such as dividends and interest.

ETFs are a good option for people looking to invest in a low-cost, diversified portfolio. Such folks can invest in well-known stock indexes without worrying about individual company stock prices or performance.

ETFs hold baskets of stocks and/or bonds just like index funds. So they help diversify your portfolio and balance the risk of owning too few securities in your portfolio. Again, this doesn’t mean that ETFs are less risky than stocks regarding short-term performance. ETFs can lose money over the short term if the market they are tracking falls in price.

Related reads: Best ETFs in Canada & How to buy ETFs

A mutual fund is a pool of various stocks and bonds grouped in a single investment portfolio.

The fund managers assimilate the different assets into shares and calculate the share price daily under the price fluctuations of each asset within the pool.

Related read: Mutual fund vs. ETF

Investing in a mutual fund differs from stocks or bonds as the pool represents a collection of various assets. Investors earn money when the stocks within the pool generate dividends and interest payments from the bonds. Assets sold by the fund at a higher price also create a capital gain distributed by the fund to its shareholders.

Mutual funds can be active or passive. An actively managed mutual fund has a manager at the helm making investing decisions and trying to beat a benchmark (i.e., “the market”). A passively managed mutual fund, also known as an index fund, can track all kinds of markets, such as Canadian stocks, U.S. stocks, international stocks, and emerging markets.

Canadian investors have nearly $2 trillion invested in mutual funds as their investment of choice. Unfortunately, Canadians pay some of the highest mutual fund fees in the world, with costs ranging from 2% to 3%.

Mutual funds typically hold a wide variety of stocks and/or bonds. So from a diversification standpoint, they are less risky than owning a few individual stocks.

However, like with ETFs, the risk of a particular mutual fund depends on the underlying holdings (or what’s in the basket). A 100% stock mutual fund is riskier than a balanced fund with a mix of stocks and bonds. But a bond mutual fund is considered a low-risk investment.

*Watch for fees

While the average return of a mutual fund ranges from 6.2% to 7.8% per year, that's without accounting for their high fees. If a Canadian equity mutual fund charges an MER of 2.2%, then expect between 4% and 5.6% per year (net of fees).

Related reads: What is a mutual fund? 

Bonds are issued mainly by companies, governments, and municipalities (provinces/cities) to raise cash in exchange for timely payment of interest on a fixed rate.

Bonds are a form of debt, and as an investor, you are lending money to a government or corporation in exchange for a fixed interest rate (or coupon). Investors can purchase federal government bonds (the safest), provincial government bonds, corporate bonds, and “junk” bonds issued by riskier companies.

Related read: How to invest in bonds

Bonds are generally considered a safer option than the stock market and act as the ballast that steadies the investing ship when waters get rough. People who don’t want to take risks or invest heavily in the stock market can consider diversifying their portfolios by purchasing bonds.

You can also diversify your bond holdings by purchasing a bond mutual fund or bond ETF, which will hold many hundreds of individual bonds in one basket.

A downside: Since bonds are considered less risky, their returns are also significantly lower than the stock market.

A bondholder is a loaner, not an owner, and should expect to receive interest payments plus the return on their principal investment when the bond matures. Federal government bonds are among the safest investments, followed by provincial bonds, high-quality corporate bonds, then lower-quality corporate bonds.

Bonds are also sensitive to interest rate movements. When interest rates rise, bond prices fall (and vice versa). Bonds with a longer duration, such as long-term federal government bonds, are more sensitive to rate movements than short-term bonds.

A Guaranteed Investment Certificate (GIC) is a type of investment that pays you a guaranteed interest rate. In exchange for your principal investment, a GIC pays a fixed annual interest rate for the duration of a fixed-term (often 1-5 years).

GICs offer the safest form of investing, albeit with the lowest expected return. GICs are best used for short-term goals. They’re a way to keep your principal investment safe while earning enough interest to hopefully keep pace with inflation.

GICs offer guaranteed returns, making them a safe haven for short-term investing needs.

Related: The best GIC rates in Canada

Cryptocurrency is a digital, alternative form of currency not regulated by any central bank. Instead, it’s managed by the people who use and buy it. Cryptocurrency trading is gaining more attention as an alternative to traditional investments, with Bitcoin and Ethereum being among the largest and most popular cryptocurrencies to invest in.

The good news: It’s never been easier to invest in crypto. Crypto exchanges and indexes are popping up, and you can even invest your TFSA or RRSP in the Bitcoin ETF.

FinTech giant Wealthsimple even launched Canada’s first regulated cryptocurrency trading platform called Wealthsimple Crypto, an online platform that allows investors to buy and sell crypto for free.

The bad news: The world of cryptocurrency is largely unregulated and highly volatile. There are no perfect indicators for predicting the price of cryptocurrencies. It’s purely based on individual demand and supply speculation. For instance, the value of Bitcoin increased by more than 90% during the COVID-19 crisis. But in May 2021, the Bitcoin price plummeted over 40% after China banned Bitcoin. Then, in 2024, after Trump was elected, Bitcoin surged to $100k in value. 

The bottom line: Expect extreme ups and downs and dedicate a small percentage (1% to 5%) of your portfolio to crypto investing rather than your entire life’s savings. Otherwise, you risk losing some – or all – of your money.

If you have the stomach to play a higher-stakes game, investing in cryptocurrency could be for you. Just reduce your risk by trading on a reputable cryptocurrency exchange and diversifying your investments.

Cryptocurrency offers casino-like odds where investors can lose most (if not all) of their money in a short period.

On the other hand, we’ve seen incredible returns in the 1000%+ range, depending on how long you HODL.

If you buy and hold for the long term, your patience and grit may pay off.

Related read: A guide to cryptocurrency trading

Real estate can be a great way to build wealth, but it comes with its own set of challenges.

Personal and vacation property: Owning your home is often seen as an investment, but it depends on market conditions. Over time, real estate values tend to rise, but they can also stagnate or crash depending on economic factors. Unlike stocks, real estate requires ongoing maintenance, property taxes, and can be illiquid (i.e., hard to sell quickly).

Related read: best mortgage rates

REITs (Real Estate Investment Trusts): A more passive way to invest in real estate is through REITs. These are companies that own and operate income-generating real estate, such as apartment buildings, office spaces, and malls. Investors buy shares in a REIT like they would a stock, earning dividends from rental income without the hassle of property management.

Related read: How to invest in REITs

Real estate crowdfunding platforms: A newer option for investing in real estate is crowdfunding platforms. These allow you to pool money with other investors to buy commercial or residential properties. Platforms like Addy, and Arrived and Fundrise (U.S. only) make it possible to invest in real estate with smaller amounts of money compared to buying a property outright.

Related read: Best Canadian real estate crowdfunding platforms 

Related read: How to invest in real estate in Canada

A high-interest savings account (HISA) is a safe place to park your money while earning a bit of interest. HISAs offer higher interest rates than traditional savings accounts but far lower returns than stocks or real estate.

Best for short-term savings, an emergency fund, or keeping money liquid while still earning some interest. While HISAs won’t make you rich, they ensure your money grows at least a little while remaining accessible.

Related read: Best high-interest savings accounts in Canada

An annuity is an insurance product that provides guaranteed income for a set period — or for life. You purchase an annuity from an insurance company, and in return, you receive regular payments, either immediately or starting at a later date.

Annuities are ideal for retirees who want predictable income without worrying about stock market fluctuations. However, they typically offer lower returns than stocks and come with fees and limited access to your lump sum once invested.

Related Read: Should you buy an annuity in Canada?

A money market fund is a type of mutual fund that invests in short-term, high-quality debt securities such as government treasury bills and corporate bonds. These funds offer stability and liquidity, making them a good option for investors looking for a low-risk place to park cash.

While safer than stocks, money market funds typically have lower returns, barely keeping up with inflation. They’re often used as a temporary holding spot for cash before moving into higher-return investments.

Treasury bills (T-Bills) are short-term government debt securities issued by the Canadian government. They’re considered one of the safest investments available since they’re backed by the government.

T-Bills don’t pay interest like bonds but are sold at a discount and redeemed at face value upon maturity. For example, you might buy a $1,000 T-Bill for $970 and receive the full $1,000 when it matures.

T-Bills are a good choice for conservative investors looking for a safe, short-term place to park money.

Related read: How to buy treasury bills in Canada

Keeping money in cash might feel safe, but it’s actually one of the worst long-term investment strategies. Inflation eats away at your purchasing power, meaning your money loses value over time.

That said, cash has its place in an emergency fund or as dry powder for short-term opportunities. But for long-term wealth building, investing in higher-yielding assets is essential.

An Registered Retirement Savings Plan (RRSP) is a type of retirement savings plan that allows you to grow your savings in a tax-deferred manner. It's one of the best ways to invest money in Canada. 

You can hold a range of investments inside an RRSP, including stocks, bonds, ETFs, mutual funds, and GICs.

In 2025, the maximum Registered Retirement Savings Plan (RRSP) contribution limit is $32,490, or 18% of your earned income from the previous year, whichever is lower. 

• If you make less than $50,000 per year, prioritize a TFSA. Your tax rate is relatively low, so RRSP deductions won’t save you much. Plus, a TFSA allows tax-free withdrawals with no impact on government benefits in retirement.

• If you make more than $50,000 per year, consider an RRSP, especially as your income approaches $75,000+. The higher your income, the more valuable RRSP deductions become in lowering your taxable income.

• If you make over $100,000 per year, an RRSP is a must. Your tax rate is high, and an RRSP deduction can save you thousands in taxes. You’ll also likely be in a lower tax bracket in retirement, meaning you’ll pay less tax when withdrawing funds later.

The benefit is that you receive a tax deduction on any RRSP contributions, which reduces your taxable income for that year. However, you will pay taxes on any withdrawals in retirement (likely at a lower tax rate). Ideally, it’s best to contribute to an RRSP during your high-income-earning years and withdraw in retirement when your income, and therefore tax rate, is lower.

Related reads: What is an RRSP? & RRSP vs TFSA

Key factors to consider

✅ Do you need the flexibility to withdraw funds tax-free? → Go with a TFSA
✅ Are you in a high tax bracket today but expect to retire in a lower one? → Use an RRSP
✅ Are you saving for a home or education? → RRSP lets you borrow tax-free (HBP/LLP)
✅ Are you expecting to receive OAS or GIS in retirement? → TFSA withdrawals won’t affect government benefits, but RRSP withdrawals might

Pros

• Tax deductible contributions – Every dollar you contribute to your RRSP reduces your taxable income, potentially lowering your tax bill.

• Tax-deferred growth – Investments inside an RRSP grow tax-free until withdrawal, allowing your money to compound faster than in a taxable account.

• Wide range of investment options – You can hold stocks, ETFs, mutual funds, GICs, bonds, and even real estate investment trusts (REITs) within your RRSP.

• Ideal for retirement savings – Designed specifically to help you save for retirement, with incentives like the ability to defer taxes until you’re in a lower tax bracket.

• Home Buyers' Plan (HBP) & Lifelong Learning Plan (LLP) – You can borrow from your RRSP to buy a home or fund education without immediate tax penalties.

Cons

• Withdrawals are taxed as income – Any money withdrawn from your RRSP (except under the HBP or LLP) is fully taxed as income, potentially at a higher rate if you withdraw too much at once.

• Mandatory withdrawals at age 71 – You must convert your RRSP into a Registered Retirement Income Fund (RRIF) by age 71, forcing taxable withdrawals.

• Contribution room is limited – The annual limit (18% of income, maxing at $32,490 for 2025) restricts how much you can contribute.

• Not ideal for short-term savings – Unlike a TFSA, withdrawing from an RRSP permanently reduces your contribution room (unless through the HBP or LLP).

• Government benefits clawback – Large RRSP withdrawals in retirement can increase taxable income, reducing eligibility for government benefits like Old Age Security (OAS).

A Tax-Free Savings Account is a registered account in Canada that offers special tax benefits.

Like an RRSP, a TFSA allows you to grow your savings tax-free and can hold most investment assets, including cash, GICs, mutual funds, stocks and bonds.

However, unlike an RRSP, you won’t ever pay taxes on TFSA withdrawals, and you won’t pay any taxes on your investment growth, dividends, or interest.

But, you won’t receive a tax deduction when you contribute to your TFSA.

In 2025, the annual Tax-Free Savings Account (TFSA) contribution limit is $7,000. For Canadians who were at least 18 years old in 2009 and have never contributed, the total cumulative contribution room by 2025 is $102,000.

TFSAs are an ideal place to park your short-term savings because the funds can be withdrawn at any time tax-free.

For long-term investments, TFSAs are a good savings vehicle if you are young, earn a lower income, and/or expect to be in a higher tax bracket down the road. That’s because the taxes you’d save now by making an RRSP contribution would be minimal.

In that case, it might be better to make TFSA contributions instead and save your RRSP contribution room for higher income-earning years.

💡 Boost your TFSA with your RRSP tax refund

If you're behind on savings, here’s a smart way to maximize both your RRSP and TFSA without feeling the pinch. This strategy supercharges your savings by letting you take advantage of RRSP tax deductions and TFSA flexibility. It’s a great move if you have unused TFSA contribution room and need to play catch-up.

• Contribute to your RRSP first – Every dollar you put in lowers your taxable income, meaning you’ll get a tax refund (especially if you’re in a higher tax bracket).
• Use your tax refund to fund your TFSA – Instead of spending it, reinvest that money into your TFSA, where it grows tax-free and stays accessible if you need it.

Related reads: What is a TFSA? & Best TFSA Investments in Canada

Pros

• Tax-free growth – Investments inside a TFSA grow tax-free, meaning no capital gains tax, no taxes on dividends, and no taxes on withdrawals.

• Flexible withdrawals – Unlike an RRSP, you can withdraw money anytime without paying taxes or losing contribution room (it gets added back the following year).

• No impact on government benefits – TFSA withdrawals don’t count as taxable income, so they won’t affect Old Age Security (OAS), the Guaranteed Income Supplement (GIS), or other income-tested benefits.

• No mandatory withdrawals – Unlike an RRSP, there’s no requirement to convert or withdraw funds at a certain age—your money can grow tax-free indefinitely.

• Can hold a variety of investments – You can invest in stocks, ETFs, mutual funds, bonds, GICs, and more within a TFSA.

Cons

• No tax deduction on contributions – Unlike an RRSP, you don’t get a tax break when you contribute to a TFSA.

• Contribution limits – The annual limit is relatively low ($7,000 for 2025), and over-contributing results in a 1% penalty per month on the excess amount.

• Withdrawals require discipline – Easy access can tempt you to withdraw and spend rather than let your investments grow.

• Not ideal for high earners looking for tax breaks – If you're in a high tax bracket today but expect to be in a lower one in retirement, an RRSP provides better immediate tax benefits.

NOTE: TFSA contribution limits roll over

Worried you haven’t contributed enough to your TFSA? Unused TFSA contribution room carries forward indefinitely, meaning you can catch up anytime.

Even though there’s an annual limit ($7,000 for 2025), your total contribution room includes all past unused space. You only get penalized if you contribute more than your total available limit.

So if you’ve fallen behind, don’t worry—you can stack up contributions when you have extra cash and take full advantage of tax-free growth. Check your TFSA limit on your CRA My Account and start catching up

An RESP is a tax-sheltered investment account specifically to save for a child’s post-secondary education or training.

You won’t pay income tax on the earnings generated on cash or investments held within an RESP, including bank interest, dividends, capital gains, or any other investment income.

But you also won’t receive any tax deduction on your contributions.

A good reason to invest in an RESP is that the Canadian government provides a 20% Canadian Education Savings Grant (CESG) on annual RESP contributions, up to $500 annually and $7,200 in total per child.

If the child doesn’t attend an eligible post-secondary institution or training program, then the sponsor of the RESP will get back their original contributions tax-free (since RESP contributions are made with after-tax income). The sponsor (ideally, the parent) may be able to transfer the investment earnings to their RRSP tax-free (if they have enough contribution room); otherwise, they will pay income taxes on the investment earnings at their marginal rate. All grant money, however, must be repaid to the government.

Many Canadians grapple with whether to save for their child’s education or retirement, so read our article on RESP vs. RRSP.

Related reads: What happens to unused RESP money? & How do RESPs in Canada work?

Pros

• Government grants (free money) – The Canada Education Savings Grant (CESG) matches 20% of contributions, up to $500 per year per child (max $7,200 lifetime). Lower-income families may qualify for additional grants.

• Tax-sheltered growth – Investments inside an RESP grow tax-free until withdrawal, helping your savings compound faster.

• Withdrawals taxed in student's hands – When the money is withdrawn for school, it’s taxed as the student’s income—typically at a very low rate, or even tax-free.

• Multiple contributors allowed – Parents, grandparents, and other family members can contribute, making it easier to save.

• Flexibility in investment options – You can invest in stocks, ETFs, mutual funds, bonds, and GICs within an RESP.

Cons

• Limited use for education only – RESP funds must be used for post-secondary education (e.g. tuition, books, room & board). If the child doesn’t go to school, you may have to return the government grants.

• Contribution limits – The lifetime contribution limit is $50,000 per child, and while there’s no annual cap, CESG grants only apply to the first $2,500 contributed per year.

• Penalties on non-educational withdrawals – If the child doesn’t attend school, you’ll pay tax + a 20% penalty on the investment growth when withdrawing funds.

• CESG is lost if not used – Unused grant money must be returned to the government if the child doesn’t pursue post-secondary education.

RESPs cover more than just tuition — and you have time to use it

Your child doesn’t have to use the RESP right after high school. An RESP can stay open for up to 35 years, giving plenty of time if they decide to take a gap year, switch programs, or go back to school later.

Many people think an RESP only covers tuition, but it can be used for a wide range of education-related expenses. As long as your child is enrolled in an eligible post-secondary program, they can use the RESP for:

• ✔️ Tuition and fees at universities, colleges, trade schools, and apprenticeship programs
• ✔️ Textbooks, laptops, and supplies needed for courses
• ✔️ Room & board if living away from home
• ✔️ Transportation costs to and from school

Don’t pay the penalty, transfer to an RRSP instead

If your child doesn’t use the RESP for education, you don’t have to lose everything. Here’s what happens:

1. 1.

   Your contributions – You can withdraw them tax-free since you already paid tax on that money.

2. 2.

   Investment growth (EAPs) – Instead of paying tax + a 20% penalty, you can transfer up to $50,000 of investment gains to your RRSP (as long as you have contribution room).

3. 3.

   Canada Education Savings Grant (CESG) – The government takes back the grants (and any interest earned on them).

The First Home Savings Account (FHSA) is best for first-time home buyers. You get an annual contribution limit of $8,000, up to a lifetime limit of $40,000. Like an RRSP, your contributions are tax-deductible. Liike a TFSA, you get tax-free withdrawals (when used for your first home). 

Any investment growth within the FHSA is tax-free. 

If there's a downside, it's that you must use the funds within 15 years. On the positive side, you can transfer any and all money into your RRSP — so even if you don't buy a home in this real-estate market (and opt to remain a renter) you can use all that money towards your retirement. 

Related reads:  Best FHSA accounts in Canada (if you want no risk, but steady growth). Otherwise, open brokerage account. 

Canada has multiple registered accounts to help with everything from buying a home to funding retirement or saving for a loved one with a disability. Choosing the right one depends on your goals—whether it's growing wealth tax-free, reducing taxable income, or securing retirement income.

A non-registered account is often called a taxable account, a cash account, a trading account, or a margin account (depending on the investment platform you use).

Whatever you call it, know that investments held inside this account aren’t sheltered from tax, so you’ll pay capital gains tax when you sell an investment for more than you paid for it, plus you’ll pay tax on any dividends or interest received inside this account each year.

A robo-advisor is a great way for new investors to start building a portfolio while keeping costs low. All you have to do is answer an online questionnaire. The computer algorithm builds a personalized portfolio of low-cost ETFs and index funds geared to your risk tolerance and financial goals.

Some of our favourite robo advisors

Wealthsimple	Moka	Justwealth
◦ Low fees with no account minimums ◦ Hands-off investing with automatic rebalancing ◦ Socially responsible and Halal investment options	◦ Round-up spare change for effortless investing ◦ No minimum investment to start ◦ Automated savings with goal-based investing	◦ Personalized portfolios with expert management ◦ Great for RESPs and goal-based investing ◦ Low-cost, tax-efficient investment strategies
Go to Wealthsimple	Go to Moka	Go to Justwealth

Do-it-yourself investors can skip the robo-advisor management fees (0.40% to 0.50%) and invest on their own for a song. All you have to do is go online, open a discount brokerage account, and pick your own investments.

Some top picks for online brokers

Questrade	Qtrade	TD Direct Investing
◦ Low trading fees and no annual account fees ◦ Commission-free ETF purchases ◦ Great for self-directed and managed investing (Questwealth)	◦ Top-rated customer service and research tools ◦ Free ETF purchases on select funds ◦ Strong mobile and desktop trading experience	◦ Full banking integration with TD accounts ◦ Advanced trading platform for active investors ◦ Strong research tools and analyst reports
Visit Questrade	Visit Qtrade	Visit TD Direct Investing