#87 What's In Your Wallet? Banks, RRSP, TFSA, Credit Cards...

Today started off with an errand. We are moving in less than two weeks so it's time to start changing addresses. The weather dropped to a bone-chilling 5C, so I pulled out the gloves for the first time in this half of the year and made my way to Services Ontario to change my driver's license address.

When I got home I started changing my address for my bank accounts, investment accounts, and credit cards. I have a lot of different places where I keep my savings.

Credit Cards

Personal Finance Foundations

Despite treating all our of money as one big pot, my wife and I keep separate bank accounts, investment accounts, and credit cards.

Bank Accounts

For the longest time, I have had a high-interest saving account with PC Financial (which will soon be called Simplii). I also have regular chequing and savings accounts with Royal Bank (RBC) so that I have access to tellers when I need special banking services. And just last week I got a special promotion from Tangerine for 2.75% interest on deposits made between now and the end of the year. I previously had an ING Direct account, but it was bought by Scotiabank and renamed Tangerine, so I reopened that account to take advantage of this promotional interest rate. 

It's a good idea to have different accounts with different banks so that you can take advantage of these promotional interest rates. Sometimes you don't want to invest all your money in stocks and bonds because you know you will need the cash in the near future, so flexible savings accounts in high-interest accounts is a great option to keep earning on your money. And 2.75% is an amazing deal I couldn't pass it up. The regular interest in my PC Financial account is only 1%.

I also have a US dollar savings account to buy US dollars when the exchange rate is "good". Since we travel often I don't want to be caught traveling when the exchange rate is "bad". The other main use of this account is to allow me to invest in US stocks like Apple.

Investment Accounts

Most of my investments are held with RBC Direct Investing. I am only keeping a minimum amount with Credential Direct to keep access to their real-time stock quotes platform. 

In Canada, we have three main types of investment accounts.

RRSP (Registered Retirement Savings Plan)

Your RRSP is the account which will pay for your sandy beach retirement. You will pay for all your regular expenses with your RRSP plus you will travel the world on your RRSP and you will pay for your hobbies with your RRSP.

The first dollars you allocate for saving and investing should go into your RRSP account. You can save up to 18% of your gross income in your RRSP every year, lower your taxable income and then your savings can grow TAX-FREE. If you are saving 18% of your gross income, you are doing way way way way better than the average person and you will likely be able to Retire a few years Early, but if you want to Retire really Early you'll have to save in your TFSA too.

TFSA (Tax-Free Savings Account)

Your TFSA is the account which will pay for those fancy toys you always wanted. These are bigger expenses, but if you save it, you deserve it. After you max out your RRSP, you can put the remaining in your TFSA up to a maximum of $5,500 a year. This is money you have already paid tax on (unlike your RRSP). But unlike your RRSP you will not pay tax on withdrawals from your TFSA, this growth is free!

Options/Margin/Cash Account (Non-Registered)

So when all your registered investing is done, you should be pretty proud of yourself. That's a lot of money saved. If you are making $60,000 a year, you are saving $10,800 ($60k x 18%), in your RRSP, and $5,500 in your TFSA. That's $16,300. This is really good. If you have a spouse and can share some living expenses, I know you can do better though. This is where the Non-Registered account comes into play.

Pile the rest of your savings into a non-registered account. This money gets no special advantages like your RRSP (not taxed on the way in) or your TFSA (not taxed on the way out), but like my wife always says "tax is never 100%", so any saving is still good.

Credit Cards

I think about credit cards in categories.

Primary/Day to Day

I have my primary credit cards which offer 1.75% to 3% cash back depending on the store. 

I have the PC Financial World Elite Mastercard. This credit card is for very high-income earners ($80k minimum or $150k household). It has no annual fee and the equivalent of 3% back in points at Loblaw stores (NoFrills, Superstore, Loblaws, Shopper's Drug Mart, etc.), but only 1% everywhere else, therefore I only use this card at Loblaw stores.

My primary credit card for purchases everywhere else is my Roger's Bank Mastercard. This gives me 1.75% cash back on all purchases, my annual fee is waived because I buy my internet from Rogers. I also get 4% cash back on purchases not made in Canadian dollars, which is great for when we travel.


The other category that is essential for me and my wife is travel and promotions. We travel a few times every year, so we look for credit cards which give us travel insurance as well as bonus points for when we travel. But since these travel cards are a lucrative business for credit card companies, we tend to switch cards frequently as we chase the welcome bonuses. Currently, I am using the TD Aeroplan Infinite Visa but after my next trip, I'm going to cancel it to avoid the annual fee. I just got the TD Cash Back Infinite Visa which has a 6% Cash Back promotion for the first 3 months and also has some travel insurance benefits.

The one card that I use the most is the Roger's Bank Mastercard, it is accessible by everyone, not restricted to people with higher incomes. I highly recommend for those that don't really want to think about changing credit cards all the time.

Seems Complicated...

...but it doesn't have to be. By no means do you need to have 4 credit cards. You can just choose 1 that can provide you all the benefits you need on a daily basis. For me, this would be the Roger's Bank Mastercard. But if you travel at least every year, you will benefit from having one travel card as well.

Investing is just as simple. You should still have all three account types, RRSP, TFSA, and Non-Registered. You can have them all with one bank like RBC Direct Investing. The investments you buy in each can be the same, so it doesn't have to be more complicated.

And if you plan to have less than $25,000 in your savings bank account at any time, then you can get away with just 1 bank account. But if you like to keep more cash in reserve, then you will definitely benefit from the extra effort of having a second high-interest savings account for when special promotions become available. $20,000 a year at 1.5% higher interest is worth $300 to you. Every little bit counts. That's your coffee budget for a few months.

Save Money Retire Early is written by Jon Lo, a barely 30 something CFA charterholder. I believe anyone can be rich or poor, it's what you save that makes the difference.

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