Category Archives: RRSP

Using Credit Card Points Toward RRSPs Revisited

One year ago I wrote my first post on this blog. It was a simple little post about using reward points on RBC or National Bank credit cards toward RRSPs held with those banks. I don’t think anyone read that post for months.

Starting this past January, however, that first post of mine has seen a massive spike in traffic generated from search engines, as people think about making their RRSP contributions. I thought I would repost for those thinking of getting a start on this coming year’s contributions. Remember, by contributing earlier in the year, you have more time to compound your money on a tax deferred basis.


If you have a Royal Bank or National Bank of Canada credit card that accumulates points, you can redeem those points for much more than a new desk lamp.

While certain TD, Scotia, BMO and CIBC cards give “cash back” credit of 0.25% – 2% of your yearly spending, RBC and National Bank of Canada encourage saving and lowering debt with their point system by allowing those points to be redeemed for “financial rewards” coupons.

At RBC points can be redeemed for vouchers that can then be deposited into your Royal Bank RRSP, TFSA, or RESP account. If you hold your mortgage or line of credit with the bank, you could also apply your points to the principal of those loans.

Redemptions start at 12,000 points for a $100 voucher, and move in increments of $25 per 3000 points. At these numbers, and assuming 1 point per dollar charged, it works out to a bonus of 0.83% of your credit card spending.

National Bank of Canada cards work out to a little higher (0.91%) but have slightly different options. Like at RBC, points can be redeemed toward your National Bank RRSP or TFSA account, but they do not seem to have an RESP option.

Points can also be used to pay down your mortgage or other loans held at National Bank, and if you are a Quebec resident, they can even be used for a rebate on your car or home insurance.

Redemption starts at 11,000 points for $100, and can only be redeemed in amounts of $100 (ie. 11,000 points, 22,000 points etc.)

Though it’s too late to use your points for the 2010 tax year, you can redeem anytime and get a good start on this year’s contributions.

After a few years of compound interest, I’m sure that the tax sheltered cash will be worth a lot more than the frying pan you could have had.

Related Posts:
  1. Using Cash Back Cards Toward RRSPs etc.

Another RBC Direct Investing RRSP Update

Back in May I gave an update after I moved all my U.S. securities held in my RRSP back into American dollars. Feel free to take a look at the original post to get the back-story.

I was quite happy in that email as it seemed my problem had been resolved after a quick 15 minute phone call. Well it looks like RBC was having some more growing pains than I thought, because after about 1 week there was no change to my account; there was still no book value listed for my securities.

So I called again and had another 15 minute or so chat with a call rep who said there was a record of my call, and the instruction to calculate my book value, but for some reason nothing was ever done.

He apologized and said my book value would show up in about three days. This was half-true… A book value was listed on my site in about three days. The problem is that it wasn’t the correct book value for my securities.

The thing was that I had bought a particular security 2 times, but only one of my purchases was listed as my book value. So last week I went through the motions again, calling them and having them re-calculate.

It finally seems that things are correct. Let’s just hope it stays that way.

Change Cards… Not Accounts

Banking can sometimes be a lot like baking. Change an ingredient and you change the result.

Sometime ago I changed my bank account to reflect my usage. I changed from a monthly fee to a free, pay per debit charge plan. The side-effect was that the fee on my credit card was no longer waived. The annual fee was less than the total monthly fees on the bank account, but it was still annoying.

I didn’t want to close my credit card account, however, because it had a 12 year history, and removing that would affect my credit score, which is something I want to keep relatively intact.

What I then thought about, and confirmed through a phone call, is that changing cards on the same account keeps the account in tact, so does not affect your score. Doing so keeps the same account active, and the information still flowing to the reporting agencies.

To clarify, your credit card is merely the piece of plastic. Your credit account is broader, and dates back to when you first applied for credit with a particular provider. In my case, I have had 3 credit cards on the same account. The first was a student card, the second was the normal version of the previous card that I switched to after graduation, and now a third card. However, my account is the same 12-year-old account.

You may not be able to switch from, say, a point card to an airmiles card, or a gas point card to a cash-back card (check with your provider), but you should be able to switch to a similarly structured card with the same provider. I switched to a no annual fee card that has the same point system (though it accumulates at a slower rate), so I can still use my points toward my RRSP or TFSA. I also ended up getting half of my last fee credited back to my account. The change also gives me some better travel insurance, and extended warranty of products bought with the card.

When it comes down to it, unless you are putting a lot of purchases on your card to justify the annual fee, you are probably better off with a no-fee card. Calling to change cards on the same account will save you money and leave your credit score untouched.

RBC Direct Investing RRSP Update

As promised, RBC Direct Investing began offering the option to hold U.S. cash and securities within an RRSP as of May 14th. I called early the next week to have my U.S. securities transferred back into U.S. dollars.

The process was smooth once I got to speak with a trader. I just told him what I wanted to do, he repeated, I confirmed, and it was done. Two days later the securities were sitting in the U.S. side of my account.

While the securities were moved over smoothly, and they correctly tracked the market value in U.S. dollars, there was no book value attached to them. I left it for a while, but since there was still nothing in the book value column this week, I sent an email and, subsequently, made a phone call.

If you have the same situation (no book value or percent change), there are two possible remedies:

  1. If you originally moved your securities from a non-registered RBC Direct Investing account to your RRSP, you simple have to call (1-800-769-2560), explain the situation, and ask to have the book value calculated. They will put you on hold while they search your account and crunch the numbers.
  2. If you originally moved your securities from another institution to the Direct Investing RRSP, you will have to submit documents from the delivering institution (ie. an old monthly statement that shows the book value) as well as a “Book Value” form, which is available here.

I originally moved my securities from my non-registered account to my RRSP within Direct Investing, so it was a very simple phone call that took all of about 15 minutes, half of which was on hold while the rep searched my account history and calculated the book values of my securities. She came back and said the book values would appear on my account page in 2 or 3 business days.

All-in-all I’m quite happy with the situation, though am at a loss as to why they couldn’t have dealt with the book values automatically, given that it was all with the same brokerage. Perhaps it’s only growing pains. A 15 minute phone call is well worth the savings on future dividends.

If you’d like to see the back story to this, please see the following posts:

  1. Dividend Conversions within an RRSP
  2. Withholding Tax/GICs and an RRSP
  3. The First Update

Changes to Canada Savings Bonds

Yesterday’s post reminded me that I saw that there were some changes made to the Canada Savings Bonds Program which will take effect later this year.

1. Sales period shortened by two-thirds: Since 1998, CSBs have been available for purchase between October of a certain year and April of the following year.

From October of 2010, however, the time will be shortened to two months – from October to December.

As for why, the information page states that 95% of bonds are purchased during these two months.

2. No new Government sponsored RSPs or RIFs: Up until now, if you selected the RSP option when buying a CSB, it would be RRSP eligible and held in a Government sponsored account. From this year, however, this option will no longer be available.

This will not affect investors who already have a Government sponsored RSP or RIF account. Those accounts will continue to exist. It is only new customers who will be affected.

As for how to keep your interest tax deferrable, CSBs will still be able to be held within a self-directed RRSP plan.

Both changes have been made in order to “help streamline the Program and ensure its long-term sustainability,” which means… save money.

If the overwhelming majority of buyers buy between October and December, and if there is a lack of interest in the Government sponsored plan (as stated on the FAQ page), then I think these changes are probably for the best, and will help out the program.

I stumbled upon this information while looking for something completely different, but it was the first I had read about it. This is one of the setbacks of living half a globe away – I don’t have the opportunity to see posters in the bank or commercials on TV.

It would be interesting to hear from any readers in Canada if this was well advertised.

Strip Bond Basics

I have a few posts planned about strip bonds (also called zero-coupon bonds), but I thought I should give a crash course in case some readers aren’t familiar with them.

I think the majority of readers have a good understanding of Canada Savings Bonds; CSBs and the similar Ontario Savings Bonds were pretty much the only bonds I knew about for a long time. In fact, a $1000 CSB was my first investment when I was a child.

CSBs are pretty simple to understand. You buy them for a certain amount and receive interest on your investment. And since they can’t be transferred, the original buyer usually holds them to maturity.

Strip bonds work differently. Instead of buying them and receiving interest, they are bought at a discount, and “mature” at a certain value. This gives them an effect similar to compound interest.

In reality, strip bonds begin as all bonds (except for federal or provincial savings bonds). A government or corporation issues bonds that make set interest payments periodically. But then a middle-man (investment dealer or a bank) buys the bonds, and “strips” the interest payments from the bond. The dealer then sells each future interest payment, as well as the principle, at a discount to the amount that will be received by the end-buyer.

Here’s a simple example to illustrate: I am an investment dealer and buy the new 1 year bond from ISO Salt Corp. It costs $1000 and has a 5% interest coupon. If I were to hold the bond to maturity in 1 year, I would receive my $1000 back, plus 5% interest, which is $50.

But I don’t want to hold the bond to maturity; I want to sell the components separately. So I sell the future interest payment of $50 now for $47.62 (this price has the effect of 5% interest, as the buyer will receive $50 in one year’s time) and the principal of $1000 (called the residual) for $952.38 (i.e., the amount that, plus 5%, will equal $1000).

The two buyers wait the year, and each receives their money. $50 for the investor who bought the interest, and $1000 to the investor who bought the residual. Both increased their initial outlay by 5%.

And that’s strip bonds in a nut shell.

The above is a simplified version. In the real world, you’d most likely be looking at terms longer than one year, and the bonds would be discounted to reflect that.  Purchases are also usually at a $5000 of face-value minimum, so buying a $50 bond is unrealistic.

They have some certain advantages and disadvantages, but can be a great part of an investment strategy if used properly… but that’s the point of my future posts.

Update on Holding U.S. in D.I. RRSPs

I think I’ve been on the phone with Direct Investing more times in the past 6 months than I had been in the 10 years prior.

I was talking to them again last night about something, and thought I would ask about the transition that is supposed to be happening “this spring” regarding holding U.S. dollars and assets in RRSPs.

The rep said that the option is set to be activated as of May 15th, and fully integrated by the end of May at the latest. The interface will look the same as the non-registered Direct Investing site, with the page divided into Canadian and U.S. Assets.

This is good news. But it won’t be automatic.

If you currently hold U.S. stocks in your account, you will have to call after the option is enabled and have your stocks journalled over to (or back to, in reality) U.S. currency. Regarding this, I asked if there will be a fee or charge related to the journalling.

He checked and specifically said there would be no cost related to the transfer, nor the conversion.

Hopefully he is right.