One of the most common RRSP misconceptions is that it's a type of savings account. It's not. It's a tax-sheltered container that can hold a wide range of investments. What you put inside it matters enormously for your long-term wealth.
What Can You Hold in an RRSP?
Canadian RRSPs can hold a variety of "qualified investments" including:
- Cash and high-interest savings accounts
- GICs (Guaranteed Investment Certificates)
- Canadian and foreign stocks
- ETFs (Exchange-Traded Funds)
- Mutual funds
- Bonds and bond funds
- REITs (Real Estate Investment Trusts)
You cannot hold physical real estate, certain foreign investments, or cryptocurrency directly (though some Bitcoin ETFs listed on Canadian exchanges are eligible).
The Default: High-Interest Savings
Many people open an RRSP at their bank and leave the money in a "default" cash account earning 0.5–2%. This is safe but suboptimal for long-term growth. Your RRSP is supposed to grow over decades, cash barely keeps up with inflation.
The Smart Starting Point: All-in-One ETFs
For most newcomers and beginner investors, one of Canada's all-in-one balanced ETFs is an excellent choice. Products like VBAL (Vanguard Balanced ETF Portfolio), XBAL (iShares Core Balanced ETF Portfolio), or ZGRO (BMO Growth ETF) provide instant global diversification across thousands of stocks and bonds in a single purchase.
These ETFs have very low management fees (under 0.25%/year) and require no ongoing management. You buy, contribute regularly, and let it grow.
Tax Efficiency Inside an RRSP
The RRSP's tax shelter is most valuable for assets that generate highly taxable income, like interest income (from bonds and GICs) and foreign dividends. In a regular account, these are taxed at your marginal rate. Inside an RRSP, they grow untouched.
Canadian dividends and capital gains already receive preferential tax treatment in non-registered accounts, so they benefit slightly less from the RRSP shelter, though they still benefit.
Self-Directed vs Managed Accounts
You have two main choices: a self-directed RRSP (you choose your investments) or a managed account (a robo-advisor or advisor chooses for you).
In Ottawa, robo-advisors like Wealthsimple Invest offer automated RRSP management for a 0.4–0.5% annual fee. For complete control and lower fees, platforms like Questrade or Wealthsimple Trade let you buy ETFs yourself.
The Worst Thing to Hold
High-fee mutual funds with MERs above 2%/year. These are still common at Canadian bank branches and can quietly drain tens of thousands from your retirement savings over time. Ask about the MER before investing in any fund.
The best RRSP is one that's invested, not just opened and forgotten. Even a simple all-in-one ETF beats leaving money in a default savings account by a wide margin over 20–30 years.
