Four basic types of RSPs

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Criteria

Choosing the Right RSP

Three criteria for evaluating an RSP

Four basic types of RSPs

Four Basic Types of RSPs
There are four basic types of RSPs. Each one carries the same tax advantages; the difference lies simply in how your contributions are invested.

This table summarizes their characteristics. Look for your best combination of potential long-term return, safety of capital and flexibility.

The four basic types of RSPs
Type	Advantages	Disadvantages
Savings account RSP Offered by: • Banks • Trust companies • Credit unions Investment vehicle: • Demand deposits • Interest calculated monthly or daily	Easily cashed in Guaranteed investments	Low real return after inflation Risk of capital erosion from inflation
Term deposit RSP Offered by: • Banks • Trust companies • Insurance companies • Credit unions Investment vehicles: • Deposit certificates with terms to maturity of 1 through 5 years	Higher yield than savings account RSPs Guaranteed investments	Funds are generally locked in for the term of the deposit Usually no possibility of realizing a capital gain by selling the deposit at a profit Risk of earning a below-market return when interest rates rise Some deposits are linked to the performance of a stock or bond index, but can be hard to understand and as a worst case, end up earning no return whatsoever.
Investment fund RSP Offered by: • Investment dealers • Investment fund distributors • Insurance companies • Some banks and trust companies Investment vehicles: • Money market funds • Fixed income funds • Balanced funds • Canadian equity funds • Foreign equity funds* • Real estate funds	Higher potential return than savings account or term deposit RSPs	Higher potential risk than guaranteed investments. These risks are related to prevailing interest rates, markets and economic conditions. Risks related to the nature of the fund and the competence of the fund manager. Annual administration fees.
Self-directed RSP Offered by: • Investment dealers • Some banks and trust companies Investment vehicles: • Investment portfolio composed of GICs, Treasury bills, bonds, investment funds, Canadian and foreign* shares	Highest potential return Very flexible Portfolio can be adapted to the specific needs of the planholder	Planholder must participate in managing the plan Annual administration fees Inflation, interest rate and market risks, which can be eased by using a portfolio approach

* Subject to applicable foreign content limits.

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