Author Topic: Canadian MMMs: where is the best place to save money for downpayment?  (Read 7417 times)

MrsTuxedocat

  • Bristles
  • ***
  • Posts: 312
  • Location: Canada
This year we have paid off Mr.Tuxedocats student loan debt and I are starting to save money for our downpayment. We will be taking advantage of the first-time homeowners RRSP plan for our downpayment. Realistically, since we live in a HCOL area it will probably take us two years to save a downpayment for a townhouse. Where should we save our money in? A GIC? Mutual funds scare me as our time horizon is short.

Thanks in advance.

KMMK

  • Handlebar Stache
  • *****
  • Posts: 1464
  • Age: 44
  • Location: Edmonton, AB, Canada
    • Meena Kestirke Insurance
There are some Manitoba credit unions with online bank divisions that have decent rates for savings accounts. I'm using Outlook financial right now - 1.7% I believe.

mrpercentage

  • Handlebar Stache
  • *****
  • Posts: 1236
  • Location: PHX, AZ
Not sure if its the same for Canada.

For short term in this market climate:
Most of you have Vanguard. If I had Vanguard this is what I would do
https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=4391

I have NAV with American Funds so I like this
https://www.americanfunds.com/individual/investments/fund/amhix
« Last Edit: March 25, 2016, 07:52:58 PM by mrpercentage »

sieben

  • Stubble
  • **
  • Posts: 128
  • Age: 30
  • Location: Saskatoon, Saskatchewan
I used Peoples Trust for a bit.
They were paying 3% when I had money there, looks like they are down to 1.75% now though :(

They were easy to work with, and transferring funds was pretty painless.
Only reason I left is I ran out of TFSA room and moved everything to Questrade.
« Last Edit: March 26, 2016, 10:06:41 AM by sieben »

nereo

  • Senior Mustachian
  • ********
  • Posts: 14779
  • Location: Just south of Canada
    • Here's how you can support science today:
This year we have paid off Mr.Tuxedocats student loan debt and I are starting to save money for our downpayment. We will be taking advantage of the first-time homeowners RRSP plan for our downpayment. Realistically, since we live in a HCOL area it will probably take us two years to save a downpayment for a townhouse. Where should we save our money in? A GIC? Mutual funds scare me as our time horizon is short.

Your timeline is short, ergo yields that are 0.25% or even 0.5% better than others still won't amount to very much.
For example, let's say you get something that pays 2% (very high in today's market).  even if you have $50k in that account you'll earn just $150/year more over an account that has a 1.7% yield.

The best thing you can do in today's low-yield environment is compile your down payment as quickly as possible (i.e. shorten your time frame).  Put another way, making sure you get to your number in 24 months instead of 30 will have the biggest impact.

dess1313

  • Bristles
  • ***
  • Posts: 438
  • Location: Manitoba Canada
This year we have paid off Mr.Tuxedocats student loan debt and I are starting to save money for our downpayment. We will be taking advantage of the first-time homeowners RRSP plan for our downpayment. Realistically, since we live in a HCOL area it will probably take us two years to save a downpayment for a townhouse. Where should we save our money in? A GIC? Mutual funds scare me as our time horizon is short.

Thanks in advance.

What sort of room do you have in your TFSA and your RRSP?
Your TFSA is handy since you can deposit it and withdraw it and use the room again later in life, just not that year
Remember with your RRSP you will have future repayments to consider into your financial planning.  yes you get the tax savings, but that depends on your incomes and a whole bunch of things.  Those repayments can be pretty big depending on how much you use.

I saved up a lot of mine in my TFSA savings account.  you could do short term GIC, but they don't pay a lot and leave you locked in
you can also do a RRSP savings account at tangerine too.  i would stay away from anything in the market since you need it in 2 years or less

i bank online with Tangerine.  they have a 6 month special if you sign up you can get 3x the normal interest rates.  I have a orange key as well(Orange Key 34500900S1), you get $50 for signing up if you do use it.


MrsTuxedocat

  • Bristles
  • ***
  • Posts: 312
  • Location: Canada
This year we have paid off Mr.Tuxedocats student loan debt and I are starting to save money for our downpayment. We will be taking advantage of the first-time homeowners RRSP plan for our downpayment. Realistically, since we live in a HCOL area it will probably take us two years to save a downpayment for a townhouse. Where should we save our money in? A GIC? Mutual funds scare me as our time horizon is short.

Your timeline is short, ergo yields that are 0.25% or even 0.5% better than others still won't amount to very much.
For example, let's say you get something that pays 2% (very high in today's market).  even if you have $50k in that account you'll earn just $150/year more over an account that has a 1.7% yield.

The best thing you can do in today's low-yield environment is compile your down payment as quickly as possible (i.e. shorten your time frame).  Put another way, making sure you get to your number in 24 months instead of 30 will have the biggest impact.

Thanks for the advice, I hadn't thought of it this way. Ugh, more frugalness will be on our way.

MrsTuxedocat

  • Bristles
  • ***
  • Posts: 312
  • Location: Canada
This year we have paid off Mr.Tuxedocats student loan debt and I are starting to save money for our downpayment. We will be taking advantage of the first-time homeowners RRSP plan for our downpayment. Realistically, since we live in a HCOL area it will probably take us two years to save a downpayment for a townhouse. Where should we save our money in? A GIC? Mutual funds scare me as our time horizon is short.

Thanks in advance.

What sort of room do you have in your TFSA and your RRSP?
Your TFSA is handy since you can deposit it and withdraw it and use the room again later in life, just not that year
Remember with your RRSP you will have future repayments to consider into your financial planning.  yes you get the tax savings, but that depends on your incomes and a whole bunch of things.  Those repayments can be pretty big depending on how much you use.

I saved up a lot of mine in my TFSA savings account.  you could do short term GIC, but they don't pay a lot and leave you locked in
you can also do a RRSP savings account at tangerine too.  i would stay away from anything in the market since you need it in 2 years or less

i bank online with Tangerine.  they have a 6 month special if you sign up you can get 3x the normal interest rates.  I have a orange key as well(Orange Key 34500900S1), you get $50 for signing up if you do use it.

I have lots of room in TFSA as I haven't been contributing to it yet and from unused RRSPs something like 15K from previous years.  I will def look into Tangerine. Thanks for your advice. I am new to this forum and have been learning a ton.

Heckler

  • Handlebar Stache
  • *****
  • Posts: 1370
Remember that your typical high interest savings is also a taxable account, and the interest earned will be taxed at your gross income rate.  A TFSA will has all the interest go to you!

I'd use a TFSA account with super low risk funds (likely a GIC or HIS), especially if your down payment is your biggest priority.  Keep squirrelling a bit away to your higher risk funds in an RSP for the far future, but use the tax free TFSA to build short term savings.  You've got $46.5k room in each of your TFSAs if you haven't used them. After the down payment, you can start saving to the TFSA for longer term goals and higher risk investments.

« Last Edit: March 26, 2016, 10:34:44 PM by Heckler »

Heckler

  • Handlebar Stache
  • *****
  • Posts: 1370
Not sure if its the same for Canada.

For short term in this market climate:
Most of you have Vanguard. If I had Vanguard this is what I would do
https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=4391

I have NAV with American Funds so I like this
https://www.americanfunds.com/individual/investments/fund/amhix

With interest rates fluctuating, a long term bond fund is a poor choice (IMO) if you need the money in two years.  My VSB (vanguard short term bond fund) has stayed flat for the past year, because even with interest, the short term unit price has slowly been dropping.  If interest rates rise, the value of the bond fund goes down until the duration of the bonds has elapsed (3 years in the case of VSB)

Heckler

  • Handlebar Stache
  • *****
  • Posts: 1370
Yup, the triple interest on a TFSA for six months sounds like a pretty good deal. 

https://www.tangerine.ca/en/saving/savings-accounts/tax-free-savings-account/index.html

After you've met your short term savings goal and spent it on a place you can switch over to one of the longer term funds for your long term goals.

http://canadiancouchpotato.com/recommended-funds/



Heckler

  • Handlebar Stache
  • *****
  • Posts: 1370
You're plan to use RRSP first time homebuyers - is that because you have the money already in an RRSP?   

If not, you might consider tax implications of using RRSP vs TFSA. 

http://www.finiki.org/wiki/TFSAs_versus_RRSPs
« Last Edit: March 26, 2016, 10:42:18 PM by Heckler »

Cowtown2011

  • 5 O'Clock Shadow
  • *
  • Posts: 36
  • Location: Windsor, ON, Canada
I'd recommend opening up a savings account with EQ bank, they are offering a 3% savings account at the moment.

https://www.eqbank.ca/personal-banking/features-rates

Good luck with the savings.



Learn more about investing from a Canadian perspective at www.thepermanentweekend.com

MrsTuxedocat

  • Bristles
  • ***
  • Posts: 312
  • Location: Canada
I'd recommend opening up a savings account with EQ bank, they are offering a 3% savings account at the moment.

https://www.eqbank.ca/personal-banking/features-rates

Good luck with the savings.



Learn more about investing from a Canadian perspective at www.thepermanentweekend.com

The interest rate is awesome!

Heckler

  • Handlebar Stache
  • *****
  • Posts: 1370
http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/eq-banks-3-per-cent-savings-account-offers-attractive-but-temporary-return/article28326447/

You'll be paying income taxes on your 3% for the marketing period (TFSA not available from EQ), until it drops down to normal interest rates.  A 30% tax rate drops it to 2% interest at tax time next year. And, here's the best part - they don't have enough customer service staff (funding??) to even process your application form.  Get in line. 

http://financialcrooks.com/what-eq-bank-should-open-savings-account/

Sorry for the negativity, but I'm weary of keeping my hard earned money with a brand new company. All I'm saying is do some research and know what you're getting into long term before falling for the marketing ploys.   

elaine amj

  • Magnum Stache
  • ******
  • Posts: 4013
  • Location: Ontario
I'd recommend opening up a savings account with EQ bank, they are offering a 3% savings account at the moment.

https://www.eqbank.ca/personal-banking/features-rates

Good luck with the savings.



Learn more about investing from a Canadian perspective at www.thepermanentweekend.com

Hmm...I've got about $20k or so we want to keep liquid for a year or so. This is very tempting. I'll have to look into this. I've had ING/Tangerine for many years so the promo won't work for me.

Eggman111

  • 5 O'Clock Shadow
  • *
  • Posts: 65
  • Age: 31
  • Location: British Columbia, Canada
Hmm...I've got about $20k or so we want to keep liquid for a year or so. This is very tempting. I'll have to look into this. I've had ING/Tangerine for many years so the promo won't work for me.

Sorry to bring this thread back from the second page, but I just learned of something that might be helpful.

Tangerine is actually offering a 2.64% promotional rate from now until the end of June for new deposits. That's what I am seeing anyway, and I'm seeing others with similar rates. You don't have to be a new member, just to deposit new money. It's not for very long, but it may be worth checking out at least in the short term before you find another solution.

Personally I am in a situation where I'm looking to save for a down payment over the next couple years, and it is tricky because you are either guaranteed to lose money to inflation or take a bit of a risk on something like bonds.

dycker1978

  • Pencil Stache
  • ****
  • Posts: 768
  • Age: 42
  • Location: Regina, Saskatchewan, Canada
One thing to remember is that you can only use a max of $25k per person from you RRSP for down payment on a home.  Also, what every your use out of your RRSP you must pay back within 15 years, or you will face tax implications.  That is year one, you must pay 1/15 of total borrowed or you pay tax on 1/15.

I would use a low risk bond or short term deposit/GIS sheltered inside a TFSA till they are maxed, then look into an after tax GIC/Term short term if you want more savings then the TFSA will allow.

MrsTuxedocat

  • Bristles
  • ***
  • Posts: 312
  • Location: Canada
http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/eq-banks-3-per-cent-savings-account-offers-attractive-but-temporary-return/article28326447/

You'll be paying income taxes on your 3% for the marketing period (TFSA not available from EQ), until it drops down to normal interest rates.  A 30% tax rate drops it to 2% interest at tax time next year. And, here's the best part - they don't have enough customer service staff (funding??) to even process your application form.  Get in line. 

http://financialcrooks.com/what-eq-bank-should-open-savings-account/

Sorry for the negativity, but I'm weary of keeping my hard earned money with a brand new company. All I'm saying is do some research and know what you're getting into long term before falling for the marketing ploys.

I applied last week for the EQ Bank and they have yet to respond to me. I think I will go with Tangerine and take advantage of their high interest savings account for the first six months.

tardis

  • Handlebar Stache
  • *****
  • Posts: 2188
  • Location: Canada
Following.

Kaspian

  • Handlebar Stache
  • *****
  • Posts: 1534
  • Location: Canada
    • My Necronomicon of Badassity
Off the subject a little, but I worry so much about the recent Canadian attitude of younger folks to get our of debt and then rush to get right back in.  (Yes, mortgage is debt no matter what peers and memes tell you.)  Retirement savings (e.g., Registered Retirement Savings Plan) should be an absolute last resort when it comes to a downpayment on a house.  RRSPs should be seen as everyone's holy grail of sanctified tax-free growth for when you're old and not a piggy bank. 

So, personally, (in this weird and ridiculous Canadian housing market) I would find a reasonably priced rental, stash the difference, and wait until it's absolutely necessary to buy a house (that means having kids).  I know hormones say, "let's settle down and make a perfect little gingerbread homestead", but that's emotion and not math or investing.

pumpkinlantern

  • 5 O'Clock Shadow
  • *
  • Posts: 76
So, personally, (in this weird and ridiculous Canadian housing market) I would find a reasonably priced rental, stash the difference, and wait until it's absolutely necessary to buy a house (that means having kids).

I would echo this sentiment if you are in Vancouver or Toronto (or similarly inflated markets like Hamilton, Victoria, etc.).

The markets in these areas are quite overpriced (obviously, this is not true in some of the other markets in Canada).  I am in the "settling down" age cohort and I see all my friends in Toronto/Vancouver wanting to buy at any cost.  Popular bubble myths are: "get into the market before it's too late" or "real estate is a safe investment" or "it's a new era of forever low interest rates".  When I try to suggest that they consider leverage risk and real estate fundamentals, they say "there's are so many super wealthy foreign investors, the prices will get even higher".  Super wealthy people did not become super wealthy by buying overpriced real estate...they became wealthy buying cheap real estate and selling it to other people when it became expensive.

Interestingly, friends who were saying very similar things in Calgary are now singing a different tune.

If you absolutely need a house for life reasons (children, etc.), then by all means buy away but don't delude yourself that real estate is "safe" or "never goes down" and don't over-leverage yourself so that you won't be able to handle a significant increase in interest rates or a decrease in housing prices.