RRSP program is interesting because we get tax break from the government. You can see how these programs work in the Canada’s Retirement System and RRSP section (RRSP). Here I would like to tell you about the differences in the way RRSP work in Banks and in Insurance Companies.

People often think, that their investments in banks are protected as well as their money in bank accounts. This is a mistake, because investment laws are the same for investments in all financial institutions. Very often we invest money in the bank in RRSP program and do not have the slightest idea where, in what kind of Funds, with what degree of risk our money works for us. To say nothing to the fact, that we have to talk to a new clerk on the appointed by him time and having waited in the line. If we invest money in RRSP, our investments work for fixed (low but guaranteed) interest or for non-fixed investment interest.

Investment laws (market laws) work in exactly the same fashion for any investments, regardless of where they were made - in the bank or in any other financial company. Before investing money it is important to get a private consultation of investment specialist. You will tell him about estimated length of investment and will bring to light your attitude to risk of investments. This will be the right way to go.

RRSP - is the name for Pension Plan, the money is sitting in a special account, which is called Registered Retirement Saving Plan. If we want this money to work and to bring better interest than the 4-5% guaranteed by the bank, we have to invest the money in Mutual Funds (Investment Funds). Investment Funds work in similar way in Investment Companies, in Banks and in Insurance Companies.

Essential distinctions exist between Mutual Funds and Segregated Funds (Investment Funds, which belong to Insurance Companies). I would like to touch upon these distinctions.

Segregated Funds - are kind of Investment Funds; they work exactly like Mutual Funds, but also have elements of Insurance of our primary investments inside the Fund.

The Insurance elements are:

• Our investments are 100% insured for devaluation at the market in case of death of investor. It means that if the investor dies, the family receives either all the investments as they are for the day of death, or 100% of the primary investment (whatever is larger). In Mutual Funds the family will receive investments, as they are for the day of death regardless of whether they are larger or smaller than our primary investments. For example, two years ago we invested $20,000 in RRSP. When the person died, there was only $14,000 in the bank because the year was bad for investing. If the money was invested in Mutual Fund, the family will receive $14,000, if in Segregated Funds - $20,000.
• Our investments are 75% insured for devaluation in case the account, whish was in use for over 10 years, is closed. For example, as the result of devaluation RRSP investment went from $100,000 down to $60,000. Ten years ago the primary investment was $90,000. If the account is closed, the owner receives $60,000 from Mutual Funds or $67,000 from Segregated Funds. (Some Insurance Companies will offer the whole sum of $90,000). There is one more distinction - you have an opportunity to revise the contract each year and fix the sum for the next 10 years.
• Money for RRSP invested in Segregated Funds has protection for creditors. It means, that in case the owner dies, the whole sum in spite of debts to private people and official organizations is paid to the family and the family decides what to do with the money.

Of course, nothing comes for free and some conditions cost money. In all investments there is a Management Fee (administrative expenses). It is 2.5 percent of your investments. All Investment Funds function for this money. In Segregated Funds this Management Fee will be a bit higher - 2.6%.

Aren't these conditions very good for the price of 0.1% ?

If you would like to have more detailed information about Mutual Funds please read section Investment (Basics of Investing).