Three awesome investment accounts for teens
Bank accounts aren’t the only option when it comes to investing your money. Once you’ve accumulated some savings, you can explore some of the other types of investment accounts. They may sound like creations pulled from a bowl of alphabet soup, but they can be super-helpful in allowing you to build wealth.
1. Tax-Free Savings Account (TFSA).
Allows you to earn money that you won’t have to pay tax on. A TFSA is a savings plan registered with the Canada Revenue Agency (CRA). You can save or invest up to $6,000 a year in a TFSA. You’re not taxed on the income you earn, so it’s a great way to save for shortor long-term goals because it lets your savings grow tax-free. 2. Registered Education Savings Plan (RESP). An RESP is a government-registered savings plan that helps you (or someone else) to save for your post-secondary education. The money you invest in an RESP grows and the federal government helps it to grow by contributing to the savings along the way, in the form of education grants. When you enrol at a qualifying post-secondary institution and are ready to take out your funds to help pay for school, the payments made using these funds are known as Education Assistance Payments (EAPs). When you eventually go to use the money (withdraw it from the RESP), you’ll have to pay tax on the investment income and government grants you received. However, you won’t have to pay tax on the contributions you made, using your own money. These amounts are taxed—but since students generally fall into the lowest tax bracket it is not likely you will need to pay anything on that portion. 3. Registered Retirement Savings Plan (RRSP). RRSPs are made to help people save for retirement. You get a tax deduction for the money you put into them and any interest they earn is tax-free as well. But since you’re probably not earning a whole lot of money right now, you likely aren’t paying much (if any) tax. That eliminates the major advantage of an RRSP, which is to reduce your taxable income. When you’re older and earning more, an RRSP will be a much better deal.