An RESP, short for Registered Education Savings Plan, is a tax-free way to save money for post-secondary education, backed by the Canadian government.
An RESP is a smart, safe way to save for future education plans. Starting early is best, but it's never too late to start one up, even if you're already in college or university. There are a few perks to doing so!
What is an RESP?
In short, an RESP is a safe way to save up money for post-secondary education.
Commonly, parents set up an RESP for their children at a young age, and contribute money over time, until a student reaches college or university age and withdraws the RESP to pay for tuition, living costs, etc.
RESPs work best in the long term, as interest accrues over time, but it's never too late to set one up.
Who can open an RESP?
An RESP is open by a "subscriber," which is the technical term for the person who makes the contributions to the account. A parent is a typical subscriber, but there are not many limits on who can be a subscriber. An uncle or family friend might set one up for you if your parent cannot, for example.
("Family" RESPs can have more than one beneficiary, if they're all siblings. So a parent may prefer a "family" RESP with all their kids listed as beneficiaries, instead of a single RESP for each child.)
An RESP is set up with a "promoter" — the institution that markets and runs the RESP. The promoter might be a large bank, or another finance-related company like Wealthsimple or Embark. (Here's a full list, if you're curious!)
Finally, an RESP must have a "beneficiary," meaning the person who will receive the money when withdrawing from the RESP. The beneficiary must be a Canadian resident.
As an example, a parent ("subscriber") might set up an RESP with Wealthsimple (the "promoter") for their daughter (the "beneficiary") to draw from when applying to post-secondary education.
Why open an RESP?
The main reason to establish an RESP is to build up interest over time, take advantage of tax benefits, and be eligible for government grants. RESPs can receive up to $50,000 per beneficiary as a lifetime contribution limit.
Family, friends, and loved ones can often contribute to an RESP as a gift, too! Check with your promoter to see if this is possible.
RESP interest rates
RESPs are a safe investment, but the exact interest rate will vary depending on your promoter and your finances.
Your interest rate could be anywhere from 3% to 7% — the higher the interest rate, the more money the beneficiary will receive in the end.
Embark's Student Plan offers a calculator for a 3%, 4%, or 5% rate of return, to give you a sense of what your contributions could amount to down the line. By contrast, RBC's example uses an interest rate of 6.26%. Wealthsimple's calculator defaults to a 3% return.
You could try a generic RESP calculator tool to estimate contributions and savings growth. This calculator defaults to 5% interest, but you can adjust it to determine if an RESP might be right for you.
RESP tax benefits
Any earnings are tax-free while in the RESP, so interest gained doesn't count as income on the subscriber's taxes. The money is only taxed when it's withdrawn — usually to pay for the beneficiary's education.
Because students usually have a low income, beneficiaries can often withdraw their money tax-free.
Be aware though, RESP contributions are not tax-deductible. The money earns interest, tax-free, but RESP contributions are not deductible from the subscriber's taxes.
As with anything related to taxes, there are exceptions and special rules — you can find all the details on the Government of Canada website.
Government grants for opening an RESP
Once an RESP is set up, there are a couple of government grants that can help. Here are a few quick details on these grants:
Canada Education Savings Grant (CESG)
The Canada Education Savings Grant (CESG) is an incentive to contribute to an RESP. The grant provides extra funding, based on the annual contribution to the RESP, up to a total of $500 per year.
Family income can affect the calculations slightly, and there's a lifetime cap of $7,200 for the CESG, but it's a nice bonus for people with an active RESP — $500 per year, automatically added to your RESP!
Check out all the details on the CESG here.
Canada Learning Bond (CLB)
The Canada Learning Bond (CLB) is a grant of up to $2,000 from the federal government to help low-income families build up their RESPs.
The CLB is automatic payment to an RESP. It begins with a $500 payment for each beneficiary, and adds another $100 for each year of eligibility, up to age 15, and a maximum of $2,000.
If you're trying to set up an RESP for yourself, it's possible to apply for the CLB as well — though you must be under the age of 21 when you apply.
(Be aware that if you don't go to post-secondary education, the full CLB amount is returned to the government.)
Get all the details on the Canada Learning Bond (CLB) here.
Provincial government incentives
Both Quebec and British Columbia offer additional incentives for contributing to an RESP. If you don't live in Quebec or BC, you won't be eligible for these programs:
- Quebec: Tax credit paid into RESP account. Your RESP provider can apply for this benefit, where possible.
- British Columbia: $1,200 grant for children between 6 and 8 years old. Parents can apply through their RESP provider, where possible.
How to maximize the value of your RESP
If you've already got an RESP in your name, or your child's name, here's some advice on making the most of it while it's active:
- Start sooner rather than later: The earlier the investment begins, the more compound interest will accrue over the RESP's lifetime
- Contribute regularly: Like with most investments, small, ongoing contributions over time are better than large, irregular deposits
- Claim your grants: Take advantage of any government grants you qualify for, like the CESG and CLB above
- Seek advice: Meet with a financial advisor at your promoter of choice, and check in with the financial aid department at your college or university to get more info on saving and investing
- Get family and friends to invest: If you're able, have loved ones contribute to your RESP in lieu of gifts. It'll pay off down the line!
- Watch out for fees: Some promoters will charge a flat, annual administration fee, while others will charge a percentage fee (usually around 0.2% to 0.5%) each year. Check with your promoter what their fees are like before signing up
What if I have an RESP, but don't attend post-secondary education?
Some beneficiaries may have an RESP in their name, but choose not to attend college or university. The money can be transferred to another account, like an RRSP, RDSP, or RESP, or a new beneficiary can be named. This article from Embark has more details for the curious.
Importantly, you will not be taxed on the money contributed to the RESP if you don't attend post-secondary, but the interest, called accumulated income, will be taxed "at your regular income level plus an additional 20% (or 12% if the subscriber lives in Quebec)."
What if I start an RESP later in life?
There's no penalty to starting an RESP as a teen or adult — the only downside is the lack of time to build up interest on your investment. Still, here's a couple things to watch out for:
The CESG is meant for long-term savings; it's only available to beneficiaries who have money in their RESP before they turn 16. If you're already 16 or older, you won't qualify for the CESG.
Further, the CLB beneficiary must be under the age of 21 — students 22 and older won't qualify for the grant of up to $2,000.
Even without these bonuses, an RESP can be a great way to save money for your education.
Okay, I'm convinced. How do I open an RESP for myself or my child?
To establish an RESP for yourself, or for your child(ren), you'll need to choose a promoter: a firm that offers RESP accounts. Canada's Big Five Banks all offer RESPs, as do other organizations. Here are a few options, but you're sure to find others!
The Government of Canada maintains a complete list of RESP promoters in Canada, which may be helpful!
In short, you'll need the beneficiary's SIN (Social Insurance Number), as well as their name and date of birth. You'll fill out some forms and be done in no time! Some promoters, like Wealthsimple, even let you set up an RESP directly on their app.
Bear in mind that RESP beneficiaries must be Canadian residents!
If you think an RESP may be right for you, you can start exploring promoters to see who will offer the best interest rates and most helpful advice! Don't be afraid to ask questions and get a second opinion before signing up for an account. Learn more about all aspects of RESPs on the Government of Canada website.
Check out Canada's complete guide to RESPs