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 The
Money Management Newsletter: RSP
Planning
Consider transferring an RRSP at maturity
By Rob Whipp
When your fixed term GIC RRSPs are up for renewal, it
sometimes makes sense to consider transferring the investment to another
institution.
Despite the obvious reason of transferring for a better
rate at maturity, another reason to consider this action is to obtain
guarantee on your renewal rate of interest prior to the actual maturity
date. For reasons unknown, some institutions refuse to offer existing
RRSP clients any rate guarantee on their maturing investments. They will
however, on the other hand, extend a rate commitment of anywhere from
30 to 60 days for new business being transferred in from elsewhere.
You can use this information to your advantage in a
period of declining interest rates to secure a better deal for yourself.
By arranging a transfer of your RRSP to a place that offers a long term
rate guarantee, you will have the security of knowing the minimum rate
that you will receive well ahead of time. Most places will give you the
higher of the guaranteed rate or the rate in effect at the time the transfer
proceeds are received.
Even if your existing carrier's rates are currently
competitive, the lack of a renewal rate commitment to you will make their
current rate meaningless if rates are falling.
Is this exercise worthwhile? Over the long term it certainly
is. As an example, a single $10,000 investment that consistently earns
6% over a 30 year time frame will grow to $57,434, while the same amount
that consistently earns 6.5% over the same time will grow to $66,143:
a difference of $8,709. Plus, keep in mind that this is one single amount.
If you can improve your returns by .5% on all of your RRSP investments,
the overall difference will be considerable.
There are a few caveats however to take into account.
Many institutions have adopted transfer out fees to discourage RRSP holders
from moving their deposits at maturity. These amounts can range from $10
to $50 and often are applied to each individual investment transferred.
Small dollar amount RRSPs can easily have the benefit of a higher rate
erased by these fees.
Another often irritating issue is the length of time
the releasing institution takes to actually send your RRSP to the receiving
institution. There are many horror stories of transfers taking months
to complete.
One of the best ways to maximize your RRSP returns is
to use the services of a deposit broker who will, at no cost to you, find
the best rate, complete the transfer of documentation and follow up with
the companies involved to ensure timely receipt of your funds.
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