DiscoveryFinance.Com » TFSA

RBC VISA TFSA Reward – is this cashback feature worth your points?

Ryan A. Smith — Sun, 05 Jul 2009 07:36:32 +0000

Last month, when I received my RBC VISA card monthly statement, I saw an advertisement about redemption of RBC Rewards points toward TFSA. Seems very interesting, but is it worth a try? I decide to take a close look.

Here is the advertisement:

RBC Rewards points can now be redeemed toward your Tax-Free Savings Account (TFSA). Redemptions start with a minimum of 12,000 points for a $100 RBC Registered Rewards voucher. For each additional 3,000 points you redeem, you will receive an extra $25 in vouchers. Not only do investment earnings grow within the TFSA tax-free, there are multiple investment options and no tax when you withdraw your funds. Visit www.rbcrewards.com/tfsa to redeem and start saving today.

Now let’s consider each of the RBC VISA cards that offer RBC Rewards points.

RBC VISA cards with annual fees

Earn 1 RBC Rewards point for every $1 spent.
Annual fee ranges from $15 to $120: Visa Classic II Student $15, Visa Classic II $35, Visa Gold Preferred $110, and Visa Platinum Avion $120.
Cashback Analysis: To receive $100 TFSA, you have to spend $12,000 on your VISA card. This gives you a cashback rate of 0.83%. This cashback rate will be even lower if you consider the annual fee you have to pay; eg, 0.71% cashback rate for Visa Classic II Student, and -0.17% cashback rate for Visa Platinum Avion (please note it’s minus! ).

RBC VISA cards with no annual fees

Earn 1 RBC Rewards point for every $2 spent.
Annual fee $0: RBC Rewards Visa Gold and RBC Rewards Visa Classic.
Cashback Analysis: To receive $100 TFSA, you have to spend $24,000 on your VISA card. This gives you a cashback rate of 0.42%.

Conclusion

Whether RBC cards have annual fees or not, the cashback rate of return is very low, compared to other Top Cash Back Credit Cards. Therefore, you might consider using the points for other things.

What Others Are Reading…

RRSP – Maximize Your Retirement Savings

Ryan A. Smith — Fri, 12 Jun 2009 01:23:08 +0000

What’s an RRSP

Registered Retirement Savings Plan is a retirement plan that you or your spouse or common-law partner establish and contribute to. RRSP contributions are tax-deductible;ie, it can be used to reduce your income tax.

RRSP vs CPP

Why should I invest in RRSP when I can get CPP (Canada Pension Plan) benefit at retirement?
Reason: CPP – small plan, big potential?!

RRSP vs TFSA

What are the differences between RRSP and TFSA (Tax-Free Savings Account)?
See this article: RRSP vs TFSA.

RRSP vs IPP

For anyone who has reached their annual RRSP maximum limit and would like to attain more tax-deductible retirement savings than what their RRSP can offer, it is POSSIBLE with IPP option which allows an even more attractive contribution room than RRSP does!
See this article: IPP – Supersize Your Retirement Savings.

RRSP Contribution Deadlines

March 1 of the following year is the deadline for contributing to an RRSP for the current tax year; eg, March 1, 2010, is the deadline for 2009 tax year.

December 31 of the year you turn 71 is the last day that you can contribute to your RRSP.

How does the Government Calculate My RRSP Contribution Room?

It’s based on your “earned income,” not Total Income (line 150), Net Income (line 236), Taxable Income (line 260), or Gross Income.
See this article: How to Calculate RRSP Contribution Room.

How Much Do Others Contribute To Their RRSPs?

See this article: RRSP – national average annual contribution.

What Types of Investments is Better for RRSP?

RRSP is a registered plan; ie, the income earned is tax-deferred till you withdraw the fund during your retirement when your income will be in the lower tax bracket. Because of this, it is better to place RRSP in the investments that generate interest income which can be taxed as high as 45%, according to your tax bracket of that year.

In contrast, although investment earnings outside a registered plan are taxable, you can reduce the tax on investment income by focusing on investments that generate primarily dividends and capital gains, which are taxed less heavily than interest income. The tax on dividends and capital gains is usually around 25%.

What Can You Do With Your RRSP Fund?

Home Buyer’s Plan (HBP): Withdrawing your RRSP funds to buy or build a qualified home.
Lifelong Learning Plan (LLP): Withdrawing your RRSP funds for continuing education or retraining.
Registered Retirement Income Fund (RRIF): Transferring your RRSP funds to RRIF when you turn 71.

What Others Are Reading…

RRSP vs TFSA

Ryan A. Smith — Wed, 03 Jun 2009 13:45:47 +0000

Which investment is better—RRSP or TFSA? This article will highlight some important differences, flexibilities, and restrictions.

Registered Retirement Savings Plan (RRSP)

Eligibility: Any Canadian residents with earned income.
Contribution Limit: 18% of earned income to an annual maximum ($21,000 for year 2009; $22,000 for year 2010); unused contribution room is carried forward and accumulates in future years.
Tax Deductible: Contributions are tax-deductible and reduce taxable income.
Earnings: tax deferred till withdrawn.
Withdrawals: Withdrawals are added to taxable income and subject to tax; furthermore, withdrawals can not be put back into RRSP in future years unless they are for Home Buyers Plan (HBP) or Lifelong Learning Plan (LLP).
Additional Notes: RRSP must be converted to a retirement income vehicle at age 71.

Tax Free Savings Account (TFSA)

Eligibility: Canadian residents age 18 or older.
Contribution Limit: $5,000 yearly (does not depend on earned income); unused contribution room is carried forward and accumulates in future years.
Tax Deductible: Contributions are not tax-deductible; ie, you pay tax on the amount you put into TFSA.
Earnings: Investment income earned in a TFSA is tax-free.
Withdrawals: tax free; withdrawals made in the previous year will be added to your contribution limit for the current year.
Transferability: There is no TFSA spousal plan. Individuals can provide funds to their spouse or common-law partner to invest in their TFSA, up to the spouse’s or common-law partner’s available room. TFSA assets can generally be transferred to a spouse or common-law partner upon death.
Additional Notes: Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as the Canada Child Tax Benefit (CCTB), the GST Credit, the Age Credit, Old Age Security (OAS) and Guaranteed Income Supplement (GIS) benefits.

Reference: TFSA