It’s often said that the best use of reward points is for travel. However, if we play our cards right, an RRSP or FHSA contribution can easily beat travel rewards redemptions.
First, the RRSP is a savings vehicle for retirement or to finance the purchase of a first home (HBP). The main advantages are :
The FHSA is a new savings account to help you buy your first home. The main advantages are :
When we talk about a tax refund, we are talking about a tax savings. In fact, when deductions are made for RRSP or FHSA, the tax payable is recalculated at a lower rate, since income is lower.
Since the tax deducted from each paycheck does not take these deductions into account, we get a tax return (refund).
An RRSP or FHSA is a type of account. Within these, you can put whatever product you want, whether it’s a standard savings account, GICs (Tangerine GICs or EQ Bank GICs), mutual funds, exchange-traded funds, stocks, and so on. The return on your account will be the fruit of what you have sown. Make sure you sow what you want to obtain and what you are capable of maintaining: that’s risk management and risk tolerance!
Many institutions offer the possibility of using your reward points to invest directly in your RRSP or FHSA.
At the time of writing, it is not possible to invest directly in the FHSA with points. However, it should come. In the meantime, you can use the points to save on a daily basis and put the money saved into your FHSA. In this way, you invest indirectly with points and can benefit from the same tax refund as with an RRSP.
Let’s take the example of the National Bank of Canada rate to calculate the real return when we use our points to contribute to an RRSP and invest with the points.
With 60,000 reward points NBC, they can be exchanged for a $500 contribution to an RRSP account.
So with 60,000 points, you can get $637.65, which is a better value than 60,000 points for $600 in travel credit!
The higher your income, the higher your marginal tax rate, and the higher your return.
Then, by putting the $137.65 tax savings into a child’s RESP (Registered Education Savings Plan), you can take advantage of an additional 30% grant or $41.30.
That means your 60,000 Reward Points can equal $678.95 in value if you contribute to an RESP!
Your new $500 RRSP contribution will start to grow depending on the product you choose.
For example, I bought $500 worth of Air Canada shares on February 9, 2021, and have had a 15.30% gain since purchase. My RRSP account shows $576.50 on February 9, 2022.
So, with 60,000 reward points NBC, I was able to obtain $714.15 ($500 contribution + $137.65 tax return + $76.50 return) in addition to the RESP grants.
And all the while, my child’s RESP has been growing too!
Another magical aspect of RRSP deductions or FHSA deductions is that they can be used for tax optimization purposes.
Many tax credits and government assistance are determined by taxable income. So, if you take out RRSP or the FHSA to reduce your taxable income, you’ll be “poorer” in the eyes of the government (even though you’ve increased your savings), and your financial assistance will be more generous!
There are different tax optimization strategies or sweetspots, depending on the situation.
Once again, I advise you to consult a professional to determine the best tax optimization for you and your family.
We often hear that you shouldn’t contribute to an RRSP when your income is low. This is not entirely true. Of course, it’s best to maximize the TFSA before topping up the RRSP in these situations, but when buying a home, it may be worthwhile to turn to the RRSP.
Also, it is possible to defer the deduction of the RRSP contribution. You won’t get the tax refund right away, but you’ll be able to earn tax-sheltered returns right away.
The same applies to the FHSA which allows you to grow your money and withdraw it without being taxed on the return! However, with the FHSAwe have to contribute for 5 years in a row when we start, so it may be preferable to wait until the right moment, when we can plan on saving $8,000 a year to maximize the product.
For example, an 18-year-old student has saved $7,500 with his summer jobs since 15. He can maximize his TFSA to $7,000 and use the excess to contribute to his RRSPs, depending on his contribution room. Then he can wait until he returns to work to maximize his tax refund.
The various institutions mentioned at the beginning of this article offer reward points as a welcome bonus. So, it is possible to get points for an RRSP contribution almost for free with these credit cards!
Following on from the examples illustrated in this article, let’s take a look at what National Bank is currently offering as a welcome bonus.
National Bank’s three flagship products earn rewards points NBC. That’s money for RRSP contributions!
These cards also award between 1 and 5 points per dollar on all your purchases, depending on the card and purchase category – even at Costco! That can add up to 5% back on your next RRSP contribution.
Students and low-income earners can earn these points with the National Bank Platinum Mastercard®.
Then, for those who qualify for the National Bank World Elite Mastercard®, you can enjoy a host of other benefits, including access to the National Bank World Elite Mastercard® and up to $150 in travel credit! lounge NBC and up to $150 in travel credit!
In short, credit card rewards points are extremely flexible. They allow us to save on everyday living, travel better, travel more and get richer! For example, by investing in an RRSP or FHSA to obtain a tax refund and much more.
Savings are here:
