Government Alerts Investors that Canada RSP and Canada RIF Plans Will Stop Paying Interest by End of 2021

Cropped shot of a senior couple sitting together and going over their financial documents together in their home.

The government is alerting individuals who own a Canada RSP and Canada RIF account that the program will cease to pay interest by the end of 2021. Photo: shapecharge/GettyImages

If you are enrolled in either the Canada Retirement Savings Plan or the Canada Retirement Income Fund, the government is urging you to explore your options as these programs will no longer pay interest by the end of 2021.

This is the culmination of a 2017 budget measure that spelled the beginning of the end for the once popular Canadian Savings Bond program. At that time, the government said it would no longer sell savings bonds and that the associated programs that generated retirement money –  Canada RSP and Canada RIF – would stop earning interest by the end of 2021.

Here are some key points to consider if you currently hold savings in either the Canada RSP or the Canada RIF.

 

Patriotic Investments

The Canadian government started selling war bonds – known at the time as Victory Bonds – in 1917 as a way to raise money to pay off the immense costs of fighting World War I. Marketed as a patriotic way we could help with the war effort, the initiative was so successful, the government resurrected the program in 1946 to pay off World War II, rebranding them as Canada Savings Bonds (CSB).

 

A Big Hit with Kids

Over its 70-year history, government savings bonds became a highly popular savings tool, especially for first-time investors. Eager to generate a modest return on their paper route or baby-sitting earnings, many youngsters turned to these safe and secure investments realizing they could earn more than by parking it in a savings account. In the mid-’90s, the program evolved to include the Canada Retirement Savings Plan (Canada RSP) and the Canada Retirement Income Fund (Canada RIF), funds made up of savings bonds that were geared toward providing modest retirement income revenue for conservative investors.

 

Changing Times

As we entered this era of low interest rates, Canadians became savvier investors and soon discovered that mutual funds or exchange-traded funds generated a much better return than did the good old savings bonds. As sales declined and management fees increased, the government decided to axe the CSB program as part of a cost-saving measure.

 

What this means

At the end of 2021, as the bond series reach their maturity dates (either Nov., 2021 or Dec., 2021), Canada RSP or Canada RIF will no longer be paid interest on their investments. You have several options: either you cash out of the programs (and pay applicable withholding tax and you must declare the proceeds on your income tax) or you can roll the remaining funds into a RRSP or RRIF account you hold with another financial institution. If you choose the latter, the financial institution or RSP administrator to which you’re transferring the funds will need to complete the CRA’s Direct Transfer Form T2033.

 

Your Money is Safe

Or you can simply leave the money in its account. The principle and interest you’ve accumulated by the end-of-year 2021 will remain safe, it will just no longer grow. Also, the government will continue sending you annual minimum payments – either by electronic transfer to your bank account or by mailed cheque – until the balance is depleted. But again, it’s in your best interest to either redeem or transfer all of your remaining balance – otherwise that money will be sitting dormant and earning no return.

 

Next Steps

While you have until the end of 2021 to make your decision, you should choose a course of action (or discuss with your financial planner) soon. To view your Canada RSP or Canada RIF account, check your statements or to redeem or transfer your funds, contact customer service or your financial institution or visit the Canada Savings Bonds site for more information.

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