Q&A: Locking in RRSP Money

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Losing sleep over an investment decision? Here, Gordon Pape on locking in RRSP money and investment strategies in a bleak economy.

Q – I have $400,000 in my RRSP that I want to lock into a five-year GIC at 3%. The funds are 100% insured by AB Credit Union. Would you ladder instead? This is all the pension money I have and this is keeping me up at night! – Terry B.

A – I have two problems with this idea. The first is the deposit insurance aspect. Most credit unions are not covered by the Canada Deposit Insurance Corporation (CDIC). They have provincial coverage in some cases (not all) but if you read the terms and conditions you may find that you don’t have the quality of protection you do with CIDC. Check the backing of your credit union carefully and decide for yourself if it is adequate to meet a serious financial emergency.

Second, even though the economy is bleak now, it will eventually improve and interest rates will begin to rise. I can’t offer a time frame for that but it’s very likely to be much less than five years. By locking in all your money, you won’t be able to take advantage of that. Taking a laddered approach, with some of your GICs maturing each year, will enable you to benefit as rates rise. – G.P.


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