Ah, the annual week of feeling the pressure to contribute to your RRSP with the hundreds of TV and radio ads is upon us. But stop a second and think:
Last week the National Post/BMO survey came out showing where we put our money once we’ve invested in an RRSP or a Tax Free Savings Account and 57% of all the money is in cash and 23% is in GICs. WHAT?
The no-service banks have spent millions of dollars this month to guilt you into contributing to your RRSP and you probably fell for it. But 80% of the money stays there and makes you no return? That’s crazy! At half a percent interest, your money will double in 140 years! Even if you’re getting a 1% GIC return, it doubles in 70 years. Is that when you’re retiring?
Banks are like airports. You go to the airport in order to get someplace. You don’t go there just to hang around for a few weeks. Banks are the place to park your money for a bit, to have a chequing account, and your emergency savings account. Banks are not the place to do investments.
Think of it this way: You donate your $5,000 RRSP money to a teller or someone in a fancy office that’s on commission. But banks keep less than 10% of it in cash. More than 90% is lend right back out on a 4% mortgage, a 6% car loan, or 20% credit card. THEY sure know what to do to make the money grow and it’s almost all free money.
It’s the best legal scam in the world: You get half a percent – they lend it out and make between 4 and 20 percent. That’s great if you‘re the bank – lousy if it’s you. If you own a clothing store, what’s your biggest expense? It’s getting clothes into inventory so you can sell them at retail. If you own a gas station, what’s your biggest expense? It’s getting the gas at wholesale into the tanks that you can then sell at a profit. But when 80% of the money isn’t making you a return, it’s as though you’ve given the banks free money to lend out, or the clothing store free inventory they can sell!
To add insult to injury, you probably have debts that you’re paying interest on. On one hand you’re locking up that $5,000 at no return while paying out that same 4 to 20% with the other hand. What’s the best way for lenders to make sure you never pay extra or pay off your debts? It’s by keeping you broke. When you pay money into your RRSP you have a lot less money to pay on your debts. That’s a no-brainer since you don’t have an unlimited income. So the banks not only get free money to re-lend, they’re also making sure you won’t become debt free for a long time to come – and that locks in the profits in interest you’ll pay for a lot more years.
Someone please tell me how it makes any sense to save while you’re in debt. When you retire you’ll have some savings and an equal or larger amount of debt – makes no sense. Get out of debt and then you can save some serious money and really quickly – money you used to send to everybody else at 4 to 20% interest.
Since we’re going to run out of time, next week I’ll give you some investment tips, tricks, and alternatives to actually make your money grow instead of helping the banks to grow their $10 billion a year in profits.