RRSPS: Stop losing money with annual contributions
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Contribute regularly and watch your savings grow higher.
Many people wait until the end of the year to make a single contribution to their RRSP.
But did you know that regular monthly contributions are much more advantageous in the long run?
To see how much your savings can grow when you make regular RRSP contributions, take a look at the tables below, which were put together by Sylvain Chartier, an advisor with National Bank Private Banking 1859.
In the table, the investor contributes $100 monthly to their RRSP, which offers an annual return of 4%.
| Month of the year | Annual return: 4 % | |
| Balance | Contribution | |
| 0 | - $ | 100,00 $ |
| 1 | 100,33 $ | 100,00 $ |
| 2 | 200,98 $ | 100,00 $ |
| 3 | 301,97 $ | 100,00 $ |
| 4 | 403,28 $ | 100,00 $ |
| 5 | 504,93 $ | 100,00 $ |
| 6 | 606,91 $ | 100,00 $ |
| 7 | 709,23 $ | 100,00 $ |
| 8 | 811,88 $ | 100,00 $ |
| 9 | 914,86 $ | 100,00 $ |
| 10 | 1 018,18 $ | 100,00 $ |
| 11 | 1 121,84 $ | 100,00 $ |
| 12 | 1 225,84 $ |
At the end of the year, the investor in our example would accumulate $1,225.84, including $25.84 in interest. This is what’s referred to as the “magic of compounding interest”: the money starts growing at the beginning of the year.
If our investor made a single $1,200 contribution at the end of the year, they would lose out on $25.84.
Assuming the return on their RRSP stays at 4%, here’s how the two approaches measure up after a longer period:
Monthly contribution
| Annual contribution
| |
| 10 years | 14 717, 62 $ | 14 407,33 $ |
| 20 years | 36 503,29 $ | 35 733,69 $ |
| 30 years | 68 751,40 $ | 67 301,93 $ |
It’s not always easy to stay financially disciplined all on your own, and it can be hard to know exactly how much money you should be setting aside every month. A certified advisor can help you.
Your advisor can recommend strategies and products that are appropriate for your financial and family situation, your future plans and your risk tolerance.
References
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