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The Money Management Newsletter: RSP Planning
Consider transferring an RRSP at maturity

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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