A thought about TFSA & RSP strategies

I was sitting around earlier thinking about different ways you can use a TFSA and RSPs.  In doing so it occured to me that when the Canadian government set up the TFSA they may have unintentionally changed the face of the savings account game a bit.

First of all let’s review the difference briefly:

• TFSA – you pay income tax on money you put in but not on money you don’t
• RSP – you don’t pay income tax on money you put in but you do when you take it out

And of course the similarity between the two being that you don’t pay income tax on whatever gains you make while it’s in the account.

So basically to me this means [I'm not going to do any math here but feel free to verify and comment if you find otherwise]:

• Early in life when your income is low and your tax bracket is too you should contribute as much as possible to a TFSA since you theoretically will be paying more taxes when you retire (you pay first but less taxes)
• Later in life, but before retirement, your tax bracket is likely to be higher then when you retire so you should contribute to an RSP since you’ll be paying less taxes when you retire

Now the tricky thing is in the middle at some point there will likely be once you’ve transitioned from the stage where you are better with an RSP then a TFSA.  What could you do with the unused TFSA contribution space?

Well, I was thinking that what if you just used it as your regular savings?  This means that money you were saving up for a down payment on a new car, or maybe that big vaction next year could be kept in a no interest account until you actually need it.  What a novel idea, for the average person who never actually reaches their full contribution on their RSP and now TFSA why wouldn’t this work?

And for that matter maybe at some point in the middle (and I don’t know the accounting part of it) you could actually take money out of your TFSA put it into your RSP and get the income taxes back on it.  Sneaky, huh?

Now at 51 referrals with ING Direct

I just logged into my ingdirect.ca account today to check to see if I have more then 50 referrals.  And it so happens that I am now at 51.  So obviously it is possible to use an ING Direct Orange Key more then 50 times.  However, I didn’t get any referral money for it so I can only assume that my 51st referral received the money where I will not.

As stated in yesterday’s post I have changed my originally posted orange key for a friends so it is a fresh untapped one.

In case you don’t have one you can try:

Orange Key: 34908230S1

There should be absolutely no problems using either my old, at least I believe so.  But to be sure you should probably use the new one posted above since I know it isn’t yet at 50 referrals.

All the best to all of you, and thanks again to my many friends out there that helped me get to 50.

50 Referrals with my ING Direct Orange Key!!!

Well, today is a somewhat momentous occasion for me.  It marks the day I have made it to 50 referrals for ING Direct.  Which means I have tapped out the ING Direct Orange Key referral well.

Unfortunately, this means that I do not believe that my key will get me any more money.  I’ll post if I actually get a 51st referral since I don’t think ING lets you do that.

So, I am now changing the posted key to make certain no readers end up with an invalid orange key.  If you do have a problem please let me know and I’ll see if I can clear anything up with for you.

Just to recap I’m retiring my old orange key 16157624S1.  And putting up a friends in it’s place.

Orange Key: 34908230S1

Best wishes to all.  And for those of you who signed up with my orange key many many thanks!!

How to make $2025 for free with ING Direct Canada

So, you are looking for an easy way to make some money?  Or maybe you just want to sign up with ING Direct Canada and were wondering about the Orange Key.

Well, believe or not there is actually a really easy way to make some cash from a bank.  The only problem is you tap out at $2025 so it’s not exactly a life sustainable income.

Without further ado, let me outline how to make your money:

Step 1:

• Sign up with ING Direct Canada for pretty much any account they offer.
• Be sure to use a current Orange Key when you sign up.
• Deposit $100 into your new account.

This will get you your first $25

Step 2:

• Convince a friend that they should sign up with ING Direct Canada
• Give your friend your ING Orange Key
• Make sure your friend uses your Orange Key when they sign up
• And that they deposit $100

This will get you $25 and your friend $25

Step 3 – 51:

• Repeat step 2 for 49 other people

This will get you $1975, and $25 for each of the 49 people you get to sign up.

(Yes the math doesn’t work out, you get a bonus for every 10 people you sign up)

Does it work? Yup, I’m on step 51 right now.  Want to know how?  I might be sweet talked into helping you out, but for now feel free to post your Orange Key on:

http://ingdirectorangekey.wordpress.com/orange-key

If you have a blog or a website I’d appreciate a link to this page if you decide to post your Orange Key on it.

Saving money while going to University

Saving money while you are in school can be very difficult, not only can it be very tempting to spend money while socializing with your friends you are also limited in your choices of employment due to your class schedule.

Many students try to save money by buying the no-name brand of this, or taking the bus instead of their car which can save money in the long run but may take much more time then the money saved. Rather then penny pinching with things that may not necessarily be worth it I’d suggest first starting by looking at your major expenses.

Housing:

Many people often start university by living in the on campus residence. This is great for getting a few friends when you are new to the university. But if you are looking to save the most money living in an apartment with several roommates can be a substantial savings versus in a one bedroom or even a bachelor apartment. In my experience sharing an apartment is often cheaper then residence especially when you factor in the over priced meal plans that are often offered with it.

Food:

Try not too eat out too often, unfortunately while going to school it’s very tempting to eat out all the time. The pull of sharing a slice of pizza or a bagel and an coffee with your friends between classes can be hard to deny. Over time that $4 slice of pizza, the $2 coffee and the $7 fast food lunch can add to over a hundred dollars a week.

Believe it or not healthy food (such as fresh produce) is often less expensive then deep fried fast food. Keeping to a simple routine of cereal for breakfast, a sandwich for lunch and pasta for dinner with fruits and vegetables mixed in can help save not only your health and your money.

Tuition:

If you are really strapped for cash this is a great place to start with by choosing a low cost university or college in a low cost city. However, doing so may reduce your options after you graduate since your location and school can make a difference when it comes to post graduate employment.

Unfortunately, once you have started going to a particular school you do not really have the opportunity to chance the price. Unless you are fortunate enough to go to a school that you can haggle the price of tuition your are stuck with what they are charging. But, one thing that you can do to help off set the price of school is to apply for scholarships and bursaries.

One thing I found particularly interesting while going to school what how many scholarships and bursaries that I could apply for. With the best intentions I would pick up the applications for them and plan on applying for them. However, inevitably the due date (which is often near the start of the term) would come an go without me applying for even one.

I regret this since so few people actually apply for them and by just applying for them I could have easily received thousands of dollars in funding.

Books:

A simple one, but sometimes over looked. My first bit of advice, do not buy new books from the campus bookstore. If you really want to buy your books new I would suggest buying your books from an online books store (ie Amazon.com). Often you can find prices there at leas 20% lower then the campus bookstore.

For more savings you can buy your books used. Often most campuses have somewhere that you can buy other people’s used books. Better yet buy the previous edition of the book for your class for really big savings. If you are worried about using an old edition just ask your professor who will often be able to tell you if it will be a problem (it probably won’t).

And don’t forget to sell your own used books. It’s highly unlikely you will ever use them again and will just end up moving them around with you for decades after you graduate from school.

What is the ING Direct Refer a Friend Program?

For a relatively long time now ING Direct Canada has been offering a program to encourage their current customers to get people they know, whether friends, family or associates, to sign up for an account.

The program essentially gives both the person referring and the person being referred a small bonus as long as a certain minimal deposit amount.

The deposit:

Currently this minimum amount is $100 and can be deposited into any type of account with ING Direct.  This includes pretty much any account that ING offers whether it be RSP, TFSA or regular.

The reward/bonus:

While in the past the values of the referral bonus has varied a bit, typically $13 but the program has been cancelled at times and was $0 for a while.  Currently the reward is $25 for each the referrer and the person signing up.

According to ING Canada you are supposed to get the bonus within 24hrs of depositing the minimal $100 into your account.  Note the distinction between 24hrs from opening your account and 24hrs from depositing the money.  As the typical manner of depositing the money is a check in the mail this of course will likely be more then just one day and could be as much as a few weeks depending on how fast postal mail takes your check to Toronto.

Signing up & actually getting the bonus:

All this information is great, however I have left out one important part, how does ING Direct know that you have been referred to sign up for the account and hence how do you get the money for being referred?

Well, put when you are referred you should be given a referral code which ING calls an Orange Key.  How you get this key is relatively unimportant to them just as long as you use it when you sign up.

It is of course important to include the referral code when you sign up for whatever account you have chosen.  Without the code you will not be able to get the bonus money.

Getting the referral code or Orange Key:

As already stated as far as ING is concerned it doesn’t really matter where you get the code just as long as you use it when sign up.  In fact they’d probably prefer that you didn’t use it when you sign up since it would save them money.

So where do you find a code?

Well maybe you have a friend that is already an ING Direct customer and as such would love to share their Orange Key with you.

Short of that you can of course search the internet for one as there are plenty of people out there who are posting theirs in various places all over the internet.  A word of caution with doing that is simply that the ones you might find may no longer be valid so just be sure that the number has been posted relatively recently.

You could of course use the one I have posted here (34908230S1), which I know is valid since I do find my account getting the bonus from time to time.  As you may guess this is my preference, but feel free to do however you like.

Conclusion:

While I wouldn’t necessarily say that everyone should just go out and sign up with ING Direct Canada just because they can get $25 when the do it.  I would say that if you are planning on doing so I would make certain that I had valid Orange Key since there certainly is no harm in getting yourself an extra bit of money.

Tax Free Savings Account (TFSA)

For those that are unaware of it starting on January 1, 2009 the government of Canada started a new legal tax shelter program called the Tax Free Savings Account (TFSA for short).  This essentially is an account that allows you to invest your money without having to pay taxes on any gains (such as interest) that you might make in the account.

There are of course a few stipulations:

• you are limited to $5000 of investment per year
• once you take money out you cannot replace it
• you still pay taxes on the money you put in

Sounds pretty simple but there are some questions I think you may have including:

• How does it save me money?
• Why is it better then an RSP?
• How can I invest my money in a TFSA?

How does it save me money?

Let me explain with a bit of math (sorry but it’s necessary when dealing with money).  So we will start with maximum yearly investment of $5,000.

Let us assume you pay 20% income tax and that when you take your money out you’ve doubled your investment.  So now you have an additional $5,000 in the account.

If this investment was done in a TFSA you will end up keeping the entire $10,000.

However, if you had invested this in a normal savings account you would have to pay 20% of your increase to the government so you would only have $9,000.  Actually, because of compound interest and you having to pay taxes yearly you probably would only have $8,500.

In short by investing in a TFSA you would have saved over $1,500.

Why is it better then a Retirement Savings Plan (RSP)?

First let me explain the main difference between a TFSA and an RSP.  With a TFSA you pay taxes on the money you put into the account but you don’t when you take it out.  With an RSP you do not pay taxes when you put money in but you do when you take it out.

What this means is that as long as you have more money when you take it out and your tax rate has not substantially dropped you will get to keep more in the end with a TFSA.

Let me illustrate, going back to our example above where we invested $5,000 and ended up with $10,000.

With the TFSA that wasn’t actually the whole story.  Before you invested $5,000 you actually paid $1,000 in taxes (assuming still our 20% tax rate).  Which means you paid $6,000 for the $10,000 you ended up with.

With an RSP you could have invested the whole $6,000 from the start and (assuming the same gains) ended with $12,000.  However, now you would have to pay your 20% tax leaving you with $9,600.  And this is of course assuming that you can invest $6,000 into an RSP without penalties.

So with a TFSA you even though you pay a bit more up front in the end you have $400 more in your pocket. (RSP:$9,600 TFSA:$10,000).

How can I invest in a TFSA?

I think there has been a bit of confusion with how you can invest money once it is in a TFSA.  Many banks especially at the start of the year were only offering to put your money strictly in a savings account (as per the name) which let’s be honest doesn’t really offer much in the way of interest.

You can think of a TFSA very much in the same way as an RSP account.  As such you can invest however you like GIC, savings account, mutual fund, stocks etc.  The only limitation is really that given by the bank you are dealing with if they don’t offer the TFSA investment mechanism that you like then I suggest you go elsewhere.

Put simply as long as the money remains in the TFSA it really doesn’t matter how you invest it.

Using online banks

People have been turning to online banks for years as a way save themselves money from banking fees.  It is as well as a way to get a better return on their deposits then they can get from traditional banks.  However, there have been some people who have transitioned from the traditional banks only to later regret it when they discover that some services they took for granted are not available with their new bank.

Questions you may want answered before making the switch likely include:

• What services can I expect from an online bank?
• How do online banks save me money?
• Why doesn’t everyone use online banks?

What services can I expect from an online bank?

In general an online (or discount) bank provides most of the basic services that traditional banks offer as well.  Essentially this means that you can both deposit and borrow money from these banks, how this is performed and the portfolio of services offered varies greatly between online banks.

The first and standard service offered is typically a high interest savings account, the actual interest rate can vary between different banks but you are more or less guaranteed a rate much higher then any traditional bank.

Next are low interest loans which is effectively the counterpart to the savings account.  The reason why these banks can offer these services is because they have a low overhead having effectively no physical presence in the “real” world.

Other services that you might find include chequing accounts, mutual funds, and credit cards.  This may seem like an exhaustive list but for some it may not cover all their needs.

How do online banks save me money?

Unlike your traditional banks, online ones do not have a significant presence in the physical world.  This alone difference allows them to offer services at a substantially discounted rate.

Typically, you will not pay any fees for any services offered by online banks.  With this said there are some cases where they will charge for some services such as non-sufficient funds (NSF) fees or fees for using ATMs outside your network.

The next way is that these banks also offer better interest rates then other banks.   This means you get a higher interest on your deposits and you pay a lower rate on your loans from them.  Again, this is effectively due to the bank passing on their savings on to you for not have any (or many) branches.

Why doesn’t everyone use online banks?

The big one would be because they want to be able to talk to someone face to face.  Although some do have a handful of locations to talk to someone they are typically either not very convenient or not common.  Examples includes PC has locations in Loblaws (and subsidiary) stores, and ING has a couple in a few major cities.

There are also other reason too:

• perhaps you want to have an add-on trading account
• maybe you want to travel overseas and use ATMs there
• you need a chequing account
• etc

And then there’s just the comfort factor in knowing that there is a physical bank to got to if you wanted.  Although I believe the fear of dealing with companies without ever seeing them is going away I think this probably remains a common factor.

PC Financial or ING Direct?

Admittedly, I am a person who deal with banks almost exclusively over the internet and phone.  Years ago I was a customer of RBC (Royal Bank of Canada) who I effectively choose by default due to it being the only bank in the town I lived in.  Since then I have decided to switch to switch to online banks due mainly to the fact that there are no fees and they have higher Savings & GIC account interest rates.

Initially I chose to go with PC Fincancial, the bank which is linked to the Canadian grocery chain Loblaws (although it has many different names).  And later decided to add ING Direct to my mix.

While selecting a bank I had a fair amount of decision making to like you do always.  Which leads to the typical questions:

• What is so great about ING Direct?
• What is so great about PC Financial?
• Which one is better?

What’s so great about ING Direct?

Savings Rates

While not the absolute top for interest on a savings account, ING Direct typically offers interest rates near the top of all banks in Canada.  Additionally, ING frequently has some promotion going on where you can get a higher interest rate for at least a few months.

Mutual Funds

As I have already stated in a previous post ING’s streetwise mutual funds are a pretty quick and simple choice for anyone starting out in mutual fund investing.  Although I think it’s probably a good choice also for those people who have been doing it a long time too.

Free debit card

You get an ING debit card that you can use to withdraw from your account.  I personally have never used it since I primarily use my PC debit for most transactions.

Some free money

For those people who are new customers and have a promotion code to enter (ie Orange Key)

No fees

As with most online banks they do not charge you for any of their services.

What is so great about PC Financial?

(Almost) Full Service Bank

PC Financial offers all the services of a brick and mortar bank.  You can have a checking account, choose from one of several savings accounts, GICs, a MasterCard, etc.  PC uses CIBC bank machines so you don’t have to pay for ATM fees at any of their machines.

I say almost because I know of people who have switched from PC Financial due to them needing services that are not offered.

Free checks

When you set up a checking account you will be sent a free book of checks.  And you can get additional checks whenever you move (with your new address) or when you run out.

PC Points

When you use your card and most especially you PC MasterCard you get free points which can be redeemed against your purchases at any Loblaws stores or their subsidiaries.  The most significant is the points you get with your MasterCard which comes to the equivalent of 1% cashback.

Savings rates

Like ING, PC Financial has fairly high interest rates, although at the time of writing ING is higher.

Few fees

For most services PC doesn’t charge, such as using your debit card, monthly account fees etc.  However, they do charge for the typical bank extras such as NSF (non sufficient funds) and like, which I would imagine ING does too.

Which one is better?

This is a tough one, if you are in need of a bank and need a checking account (who doesn’t?) then you are likely to choose PC Financial at least for that.

If you are just looking for a safe and easy place to put your savings I would think ING would take top prize.

What is the Orange Key at ING Direct?

So you are ready to sign up for an ING Direct account, you click on the link saying “Sign Me UP!!”

You proceed to fill out all the questions about yourself and then at the bottom of the page you see a field for something called an “Orange Key”

This of course makes you wonder, what exactly is this?  If I fill it out will it benefit me in anyway?

What is the Orange Key?

To answer your first question, the Orange Key is a promotional code that ING can use to track the various promotions it has in effect at any point in time.  The most common one that I am aware of is their refer a friend promotion.

This friend referral program is offered to any person who has an ING Direct account already in the form of giving each current customer an Orange Key number with their account.  With it alone the customer actually cannot benefit what so ever.  In order to gain any benefit this customer has to persuade their friend, coworkers, relatives or anyone else to open an account presumably by saying how great it is being a customer is and all the benefits.

Okay, so how could this benefit me?

This gets me to what matters the most.

Now that a customer has convinced another to signup he then gives the new person his Orange Key.  With it the person signing up get a bonus when they deposit $100 into their new account.  Currently this bonus is $25 which ING Canada gives to both the person signing up and to the person that helped them to sign up, which ING knows by way of the code.

Summary:

If you sign up for an account with ING you can get $25 if you give include an Orange Key.

How can I learn more?

To find more about the Orange Key program feel free to check my Orange Key page or you can take a look on the ING Direct Canada page explaining the refer a friend program.