Tips to Help You Start Saving Money

Want to save money for an emergency fund…or just because you know it’s important? Here are a few tips to help you make some tax-savvy investing moves and save a little each month!

Choose the right account for your savings.

Think you’ll need some of your savings in the next year or so? Consider the pros and cons of saving in a high interest savings account vs. a Tax-Free Savings Account (TFSA):

  Pros Cons
TFSA
  • The money you earn from investments you hold in a TFSA (interest, dividends or capital gains) is not taxed, which means it can grow faster
  • Hold a variety of investments (mutual funds, guaranteed investment certificates (GICs), cash) in a TFSA to maximize your growth opportunities
  • Withdraw your money for any reason—tax-free
  • The timing of your withdrawals depends on what you invested in—for example, non-redeemable GICs must be held until maturity
  • There is a maximum amount you can contribute each year (plus any contribution room you have from previous years)
High Interest Savings Account
  • Withdraw your money at any time, for any reason
  • There are no contribution limits
  • The interest you earn is taxable
  • Growth is limited to the interest you earn

One approach is to use a high interest savings account for unexpected expenses and a TFSA for your other general savings. That way, you’ll be less likely to have to tap into your investments early.

Tips

Try the TFSA calculator to see how your money could grow.

 

Start saving now (even if it’s a little).

Many people make the mistake of delaying saving and investing because they think they don’t have enough to get started. The truth is you don’t need a lot, especially when time is on your side. See for yourself…

Starting Early with a Little vs. Starting Later with More

  Sarah John
Initial investment $100 $3,000
Monthly contributions $100 $150
Interest (compounded monthly) 5.5% 5.5%
Years to save up for goal 10 years 5 years
Total interest earned $4,023.87 $2,279.23
Total value of investment $16,123.87 $14,279.23

Calculations are for illustrative purposes only

Because she started sooner, Sarah saved $1,844.64 more than John, even though she invested $2,900 less initially and contributed $50 less each month.

 

Be committed.

Put your savings on auto-pilot and grow your money faster by setting up regular (weekly, monthly, etc.), automatic contributions into your TFSA or high interest savings account.

Tips

Tip: Start with what you have. Anytime you have extra cash (a tax refund, for example) you can make a larger contribution.

  • You decide how much to save and how often—weekly, bi-weekly, monthly—it’s up to you
  • Contributions are automatically debited from your bank account (at RBC or another financial institution)
  • You can change how much you want to save, how often you contribute, and stop or pause your contributions at any time
Tips

Tip: Set your automatic contributions to coincide with every paycheque.

 

Take advantage of free tools.

If you’re an RBC client, you’ve also got access to free tools that can get you started with saving and help you stay on track:

  • A quick way to start putting money aside is with the help of NOMI Find & Save. It’s a digital savings account that learns your transaction patterns, finds extra dollars in your cash flow and automatically moves them to savings. Turn on NOMI Find & Save in the RBC Mobile app.

  • MyAdvisor is a digital service that can help make saving for the future easier.

MyAdvisor is a digital service that combines interactive planning tools and advice from a live advisor to help you stay on top of your savings goals. It’s exclusive to RBC clients, easy to use and available to you at no extra cost.

  • See what you have with more certainty. MyAdvisor shows you how you’re doing with powerful visuals and forecasts of your goals, net worth and cash flow.
  • Link outside accounts for a complete picture. Have savings and investments outside of RBC? MyAdvisor lets you quickly link them for an up-to-date look at your money.
  • Receive personalized advice. Meet with a live advisor through video chat, by phone or in person to review your savings plan, talk strategy or to simply ask a question.
  • Stay on track toward your goal with email alerts. Progress alerts let you know whether you need to adjust the amount you are saving in order to reach your goal.
  • Get started in a few simple, hassle-free steps. In minutes, you’ll have an idea of where you stand, see recommendations to help you grow your savings, and be able to book a one-on-one with an advisor.

Sign in to RBC Online Banking and try MyAdvisor today.

Not Sure Where to Start?”

Answer a few quick questions and our Investment Wizard will give you some ideas!

FAQs on Saving Money

The limit for 2020 is $6,000. However, if you haven’t maxed out your contribution limit (see chart) in any prior years you were eligible for the TFSA, you may be able to contribute more.

Year Contribution Limit Per Year
2019 - 2020 $6,000
2016 - 2018 $5,500
2015 $10,000
2013 - 2014 $5,500
2009 - 2012 $5,000

Unused contribution room can be “carried forward” indefinitely and there is no limit on how much contribution room you can accumulate. For example, if you haven’t contributed anything to a TFSA, your contribution room could be $69,500 for 2020!

The Canada Revenue Agency (CRA) tracks contribution room and reports this amount through the “My Account” function on the CRA web site.

Unlike simple interest, which means you earn interest on your initial savings only, compound interest means you earn "interest on interest". The interest you earn on your initial savings is reinvested, so you earn interest on the new total—the original amount plus the interest.

Here's an example of compounding on $10,000 earning a guaranteed 2.5% interest rate (assumes annual compounding and no additional contributions):

Year Value on January 1 Interest earned (2.5%) Value on December 31
1 $10,000.00 $250.00 $10,250.00
2 $10,250.00 $256.25 $10,506.25
3 $10,506.25 $262.66 $10,768.91
10 $12,488.63 $312.22 $12,800.85
25 $18,087.26 $452.18 $18,539.44

As the example shows, the longer you can keep your money invested, the more significant the impact compounding interest can have.

Mutual funds, individual stocks and exchange-traded funds (ETFs) can also pay income in the form of dividends and distributions, and compounding can come into play if you reinvest those earnings.

The quick answer is…it depends! Everyone is different and that’s why this question is often best answered with the help of an RBC advisor.

Here are a couple thoughts to keep in mind though:

If you’re paying 19.99% in interest on a very high credit card balance, the interest on that debt may cost you more than you might make saving or investing your money. In this case, it might make sense to pay down your highest-interest debts first. Another reason to pay down debt first would be if you are feeling very overwhelmed by it.

On the other hand, if you feel like your debt is manageable right now and you have some extra money you could put away, it may make sense to start investing.

Want a personalized answer to this question? Talk to an RBC advisor today!

You might also be interested in the following case study: Should I Pay Down My Mortgage or Invest?

Consider keeping 3-6 months of living expenses in an account that’s easy to access. Whether it’s something small like needing new brakes—or something big like an unexpected layoff at work—you’ll be glad you have the extra money.

You can use both a Tax-Free Savings Account (TFSA) and a high interest savings account to save for a rainy day. Just remember that with a TFSA, the investments you hold in it can impact your timing. For example, you must hold non-redeemable guaranteed investment certificates (GICs) until they mature, otherwise, you will pay a penalty.

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