RESP – Registered Educational Saving Plan
Although public schools and some other educational institutes (such as Catholic schools) offer free education to students from grade 1 to 12 higher education is not free in Canada. Students and/or their parents/guardians need to pay for their studies at the college or university level. Most colleges and universities offer significant discounts to local students but for those who study far from home accommodation and transportation costs are usually very tough to handle.
Registered Education Saving Plan (RESP) is a good program to deal with this problem. You may open an RESP with virtually any financial institution in Canada including but not limited to banks, credit unions, and some other financial institutions such as Sun Financial, Manulife, Investors Group, and Edward Jones. Click here for a list of RESP providers.
How to Open an RESP
RESP is very similar to a regular bank account with some limitations. You may refer to the financial institution of your choice, fill out some forms and then open the account. In order to benefit from the government grant your child needs to have a Social Insurance Number (SIN). You may refer to any HRSDC (Human Resources and Skill Development Canada) branch to obtain one.
You also need to select the type of investment you are interested in. You may pick one of the following options. The list is not exhaustive (that is more options could be available).
- A regular savings account which usually yields the least growth rate (usually less than 2% growth on investment per year)
- A GIC (Guaranteed Income Certificate) which usually generates more growth than the regular savings account and is not risky at all
- A mutual fund (which is usually a combination of many stock shares and bonds or other financial instruments). This option usually is more risky but could yield to more growth.
The financial institution usually conducts an assessment by asking some questions from you. They offer you some options based on your financial status, willingness to regular contributions, your knowledge of investment options, and the level of risk you tolerate. Many plans give you the opportunity to switch the method of investment in the future.
As you invest in RESP government also contributes to your child’s account. The amount that government invests – which is called “grant” – depends on your family income and also the amount that you have invested. For example for the first $500 that you invest in a year they may invest up to $200. This amount could reach up to $600 per year and a total of up to $7200 during the time of investment (or rather till your is 17). The amount of grant and its conditions could change in the future. Click here for more information about the government grant.
You may contribute to RESP till your child is 17 years old.
How to Spend RESP
You may spend RESP on higher education only. You may spent it on your child’s education in Canada or outside Canada. Most of full-time and some of part-time programs are eligible for this purpose. Click here for more information.
You may share the amount invested in an RESP account between your children or rather transfer it from one child to the other. If for any reason none of your children use the amount or you need your investment for other purposes you may take the money out of this account. However, you may be penalized and also pay taxes. Click here for more information about your options.
You may also click here to download a brochure about RESP. The brochure is currently available in the following languages.
- Tagalog (Filipino)
They may add more languages to the list in the future.
Should you decide not to invest in RESP then you may invest on your own without the government’s grant, pay for the tuition from your own or your child’s pocket, or apply for student loans such as OSAP (Ontario Student Assistance Program).