Read the fine print
An intriguing press release came through my e-mail box recently. Just as the kids were heading back to school, The Bay proudly announced that participants in its Hbc rewards program will now be able to exchange 100,000 points for a $100 contribution to a new registered education savings plan (RESP) opened through Canadian Scholarship Trust Plan (CST) or Heritage Education Funds.
The initiative “raises the bar on customer rewards programs”, the press release proclaimed. The Bay’s CEO, George Heller, was quoted as saying his company is “proud to be able to give all Hbc Rewards members the opportunity to start an RESP today.”
It all sounds very noble. But before you rush to set up a plan, take a close look at the prospectuses. Let’s use the one from CST as an example; it runs to a mind-boggling 80 pages. In order to get that $100 from Hbc Rewards, you have to commit yourself to paying what could add up to a lot of money.
For example, if you decide to open a CST Group RESP (for children up to age 12) that will cover all your family members, there’s an enrolment fee of $200 a unit. The more money you want to contribute, the more units you have to purchase. There areome complicated tables and examples included in the prospectus to help you calculate precise numbers. There are also some annual fees on top of this.
When you start contributing to the plan, all the money you put in (yes, all) is applied against your enrolment fee until half the amount due is paid. That means you are not putting any money aside for your youngster in the early stages — you are simply paying fees. Once half the amount owed has been paid off, 50% of your contribution goes towards the fees until they are discharged, with the other half to savings. The CST prospectus gives this example:
“If you are contributing $50 per month and the total enrolment fee is $500, the enrolment fee would be paid as follows:
“• first five months: $50 per month would go to the enrolment fee (this equals $250, which is one-half of the enrolment fee).
“• subsequent 10 months: $25 per month would go to the enrolment fee (this equals $250, which fully pays the enrolment fee) and $25 per month would go to the Principal.
“• subsequently $50 per month would go to the Principal.”
So after 15 months you would have paid out $750 of which $500 would have gone to fees and $250 to your child’s account. You will get your enrolment fees back down the road, if you make all the required contributions and if your child receives all four education grants from the trust.
It’s also important to understand what happens if you decide not to continue with the program. If you cancel after 60 days, you will lose all the enrolment fees you have paid as well as any interest earned. You will get your principal back, once the costs have been deducted.
The Family and Individual plans for children 13 or older have different rules and much lower fees. The minimum initial contribution is $150.
The terms and conditions for Heritage Funds may differ somewhat so review their prospectus if you are considering opening an account there.
Scholarship trusts have provided financial assistance to a lot of students over the years. But opening an RESP with one of them involves a significant financial commitment for a family. So don’t rush into it just because you can get $100 from Hbc Rewards. There’s a lot to consider. Do your homework.