Case 1: Put it in the Bank

in Mortgage Rates, RRSP

So this case is pretty simply. Our family has their $1000 per year extra going into an RRSP, and when they get the money back they put it in a savings account that pays 1% (yes this is not the best, but we need a baseline to start from).

Savings Rate 1.00%
Yearly Input $1,000.00
RRSP Return 5.00%
Tax Rate 30.00%
Year To RRSP Refund to Savings Total Savings Total RRSP
1 $1,000.00 $300.00 $300.00 $1,000.00
2 $1,000.00 $300.00 $603.00 $2,050.00
3 $1,000.00 $300.00 $909.03 $3,152.50
4 $1,000.00 $300.00 $1,218.12 $4,310.13
5 $1,000.00 $300.00 $1,530.30 $5,525.63
6 $1,000.00 $300.00 $1,845.60 $6,801.91
7 $1,000.00 $300.00 $2,164.06 $8,142.01
8 $1,000.00 $300.00 $2,485.70 $9,549.11
9 $1,000.00 $300.00 $2,810.56 $11,026.56
10 $1,000.00 $300.00 $3,138.66 $12,577.89
11 $1,000.00 $300.00 $3,470.05 $14,206.79
12 $1,000.00 $300.00 $3,804.75 $15,917.13
13 $1,000.00 $300.00 $4,142.80 $17,712.98
14 $1,000.00 $300.00 $4,484.23 $19,598.63
15 $1,000.00 $300.00 $4,829.07 $21,578.56
16 $1,000.00 $300.00 $5,177.36 $23,657.49
17 $1,000.00 $300.00 $5,529.13 $25,840.37
18 $1,000.00 $300.00 $5,884.42 $28,132.38
19 $1,000.00 $300.00 $6,243.27 $30,539.00
20 $1,000.00 $300.00 $6,605.70 $33,065.95

So at the end of 20 years we have $33,000 in our RRSP and another $6600 in our savings account (and paying tax on the interest on the savings account too). This is not bad really, you now have almost $40,000.00 put away for retirement and a rainy day.

Monday, what if we use the refund wisely?

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