- This year, 40 per cent of Canadians are focused on using their RRSP refund to pay down debt, including their mortgage - One in five are planning to save or invest the money in a TFSA or RRSP - Only 11 per cent will be using their refund for travel or leisure items - BMO offers advice on how to make the most of an RRSP tax refund
TORONTO, ONTARIO--(Marketwire - April 3, 2012) - With April officially here, many Canadians are looking forward to their Registered Retirement Savings Plan (RRSP) 2011 tax refund. According to a BMO study, 40 per cent of Canadians who are expecting a refund are most likely to put the money towards paying down household debt, including bills, credit card balances and mortgages. Last year, 42 per cent of Canadians indicated they would be putting their RRSP refund towards household debt.
According to the Canada Revenue Agency, the average total tax refund received last year was $1,506.
"Managing the household balance sheet, including debt, is an ongoing priority for Canadian families; so it's encouraging to see that many are using their refund responsibly," said Su McVey, Vice President, BMO Bank of Montreal.
Ms. McVey noted that mortgages represent the largest portion of debt among Canadian households, and reducing overall debt starts with limiting the amount of time a mortgage is carried. "Opting for a 25-year amortization significantly shortens the amount of time you carry mortgage debt, while also saving thousands of dollars in interest over the life of the mortgage. This can help Canadians begin building equity in their home sooner," said Ms. McVey.
Additional survey findings include
- Twenty one per cent are planning to save or invest the money in a high interest savings account, Tax Free Savings Account (TFSA) or back in their RRSP (down from 33 per cent last year)
- Eleven per cent plan to use their refund for travel or leisure items (versus nine per cent last year)
- Ten per cent plan on using their refund for home renovations and/or household expenses (versus 11 per cent last year)
"Receiving a lump sum of cash can be a big help any time of the year," said Tina Di Vito, Head of the BMO Retirement Institute. "It's important to determine how to best put this money to work for you by addressing your individual needs, whether it be debt reduction or investing for retirement. Meeting with a financial professional who can help you assess your situation and work with you to develop a financial plan is a good first step to ensure your RRSP refund is put to the best possible use."
BMO offers advice on how to make the most of your RRSP contribution tax refund:
Pay down your RRSP loan or make your 2012 RRSP contribution now
If you took out a BMO RRSP Readiline loan to maximize your RRSP contribution and generate a larger tax refund, use your refund to pay down the loan. If not, consider making your 2012 RRSP contribution now instead of waiting until the deadline next year. This will allow you to benefit from almost an extra year of tax-deferred growth.
Manage credit card debt
Pay down credit card debt - beginning with those that carry the highest rate - and consider using a low rate card or reducing your interest charges with a low interest rate option for purchases. For instance, the BMO Preferred Rate MasterCard offers a low rate of 11.9 per cent for an annual fee of $20 per year.
Top-up your savings
If you are not carrying any extra debt then make your refund work for you. Contributing to a Tax-Free Savings Account (TFSA) can let you grow your money tax-free, or a high interest savings account such as BMO's Smart Saver account can help maximize your savings.
Save for education
Education can be an expensive investment. Contributing to a Registered Education Savings Plan (RESP) can help alleviate some of the pressure that all parents feel when planning for their children's future. Consider opening an RESP using your tax refund. A $2,500 dollar contribution to an RESP can earn a $500 grant from the government. Maximize your contributions every year and you could earn up to $7,200 in lifetime grants for every child.
For more information on how to make the most of your refund, please visit: www.bmo.com/smartinvesting/.
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The survey was completed online from February 21, 2012 to February 23, 2012, using Leger Marketing's online panel, LegerWeb, with a sample of 1,500 Canadians. A probability sample of the same size would yield a margin of error of ± 2.5%, 19 times out of 20.