I received an email from Michelle the other day about the best way to grow her down payment savings for a house in 2 years time.  Here is the email:

 My husband and I will buy a house in about 2 years. We have no credit card debt or loans and usually we can put away between $500-$800 per month. We are trying to save as much as possible for a down payment. We have RRSP's but you can only use $20,000 towards a house. We will do that at the time. In the mean time we have an account that gives us about 3% interest on the money we are saving monthly. Currently there is $42000.00 there. How can we make this money grow faster in the next 2 years without locking it in?  Thanks for any suggestions.

To begin, I would like to say congrats for staying out of debt and putting away money every month.  That in itself, is a huge financial achievement.

So, the key question is, how to grow the down payment money as fast as possible without locking it in?  With the 2 year time line that you have, I think that investing in the stock market is out of the question.  I think that your best bet would be maximize your RRSP (for both of you), and put the rest in a PC Financial Savings account that pays 4% annual interest.

Also note that with the RRSP Home Buyers Plan, you can contribute $20,000 from EACH of your accounts.  So you can potentially use $40,000 from your RRSP's providing both of you qualify.  As for which investment vehicles to use inside the RRSP, if you're not willing to lock in your money, then a money market fund is among the few choices available.

Note that I'm not a financial advisor, so please take my advice at your own risk.  Note my disclaimer at the bottom of the page.


  1. The Financial Blogger on August 21, 2007 at 7:55 am

    another great way would be to do 2 RRSP loans (one for her and the other one for her husband) to catch up on their non-used contribution. Let’s say they would do 10K each and they have a marginal tax rate of 35%. They would each get 3,5K in tax return. This means an additional 7K for their cash down.

    The key here is to make the RRSP loan in time to get the tax refund before they purchase the house. Note that many institutions offer 3 months and 6 months differ payment for the first date of payment. So here is the time line:

    They get 20K in RRSP loan together. They don’t make any payments yet as they choose the 6 month differ payment option. They receive their tax return of 7K. They buy their house (with cash down of 42K + 7K + any other savings and growth during the next two years). They use the Home Buyer Plan and withdraw 20K. They use that 20K to pay off the RRSP loan. In the end, the Government had gave them 7K. The only thing is that they will have 15years (plus 2 years of grace period) to put back the 20K in.

    As they already planned on using the HBP with their existing contribution, it won’t make any difference in their situation. Just 7K more in their pocket. However, don’t forget they would have to pay interest on the RRSP loan at the time of reimbursement (about 6 months of whatever prime rate is in 2 years!).

    I could write a full article on that, I hope I made it clear within a few lines comment!


  2. Q Cash on August 21, 2007 at 9:02 am


    If they know they have 2 years, why not recommend a GIC rather than just a savings account. They can probably get a better rate and no temptation to spend it.


  3. FrugalTrader on August 21, 2007 at 10:03 am

    Hey Q! The reason why is because they add to their savings every month, and with a GIC, you can’t add to the balance (afaik).

    FB, I think the RRSP loan idea is great! They can use their excess cash flow to pay down the loan every month.

  4. Cannon_fodder on August 21, 2007 at 10:15 am

    I was enlightened about money market funds this morning. Here is one of many recent articles focussing on the fact that they are NOT risk free nor do they have the guarantees that savings accounts can have.

    FB – I don’t know how they would know, but is it possible to withdraw money from the HBP and not directly use it as a mortgage downpayment? Your suggestion was to pay off an RRSP loan which indirectly went towards the mortgage downpayment.

  5. tom on August 21, 2007 at 10:55 am

    Could also use short-term GIC’s (3-6 month) and roll them over (catch higher rates if they go up). Use a gic broker (not a bank) to get higher rates .Build up savings in PC account then roll into another GIC when amount gets to a couple of thousand.

  6. The Financial Blogger on August 21, 2007 at 11:46 am

    I have seen that many many times as a banker. It is a total legitimate way of doing it :-D

  7. nobleea on August 21, 2007 at 12:25 pm

    It’s true. There is absolutely no stipulation in the HBP that it has to be used on the house. You can use it on a trip, furniture, downpayment, closing costs, improvements, etc etc.

    I did the HBP loan/payoff/tax return thing as well. In fact, that was the vast majority of my downpayment. I invested aggressively during that 90 days and managed to get 10% return in 3 months.

  8. FourPillars on August 21, 2007 at 12:40 pm

    I think you guys are assuming that the couple doesn’t have $40k in their rrsp available for HBP?

  9. Man From Atlantis on August 21, 2007 at 12:54 pm

    Be a little carful taking out a loan for an RRSP and then doing the HBP. You may find that the bank won’t allow you to cash in the RRSP accounts until the loan is paid off. Check first.

  10. nobleea on August 21, 2007 at 1:30 pm

    Man from Atlantis;

    Perhaps. I had no problems with the process. In fact BMO published a little brochure on how to do it, which is where I got the initial idea. I doubt they have the brochure anymore, it was at least 5 years ago.

  11. FourPillars on August 21, 2007 at 1:41 pm

    Man from Atlantis – you are not allowed to use rrsp assets as collateral for a loan. I believe an rrsp loan is like a personal loan.


  12. Gates VP on August 21, 2007 at 4:56 pm

    OK, so to break this down:

    Step 1: Get 40k into RRSPs (that’s 20k each).

    Step 2: Ensure that these 40k are invested in correct “securities”, money beyond the individual 20k should probably be invested in the markets (i.e.: mutual funds, see elsewhere for advice). In terms of RRSP securities, the suggestions include GICs, Money Market funds, T-Bill funds, or even Canada Savings Bonds (all paying better than 3%). Note that links are a little everywhere, there are lots of options.

    Step 3: Take the remainder of savings and find a really good interest rate for these: PC Financial, ING, etc. or one of the investments you used above.

    Step 4: You likely just moved a big chunk of money to an RRSP, that carries a huge tax return. You have 2 years, but you’ll be getting several thousand back in April (likely 5-10k!) So plan for a place to put this money.

    Assuming that you have: 20k in RRSP, 42k in investments and 600-800/month to save. I would detail the plan as follows (my personal advice).

    Grab an accountant for an hour and make sure that you’re putting the right money in the right accounts for tax purposes. Your goal here is to have 20k each in RRSPs between the two of you. Dependent on the current arrangement, you may need to shuffle some things (hence the accountant). His “accounting advice” will pay for itself, so just expect him to charge you $300+ for a good sit-down.

    FT and I are both suggesting a high-interest bank for your non-RRSP savings, but you can go with the same vehicle you’re using in your RRSPs. The benefit to using the bank is to have liquid cash and to have the ability to jump on opportunities. Having 20k+ in a bank account (not locked into GICs) can be a big lifesaver.

    Once you’ve completed everything above, you’re done Phase 1. Phase 2 involves future planning.

    What are you going to do with the 5-10k tax return?

    How much are you going to continue to save to RRSPs? Once you take out the 20k, you’ll have 15 years to repay, that’s $111/month/person.

    How much goes towards the rest of your house savings?

    End of the day, you’ll probably want a mix like: 150/month/person into RRSPs, 300-500/month towards the home fund(s). It’s also worth noting that you’re likely spending far less in renting that you will be in owning. Check around the blogosphere, but I’ve seen numbers like 1000/month more. There’s a lot of reading materials here, but realize that it’s unlikely that you’ll have lower monthly expenses while owning and account for that as well. If you throw all of your money at the home and the RRSP payback, you’re throwing a lot of eggs in one basket.

    I would plan to start putting some type of “non-house” money aside so that you don’t get trapped with everything invested in the house.

  13. The Financial Blogger on August 21, 2007 at 6:32 pm

    It took me forever to get to this comment! What is going on with the Server errors?

    FP, I don’t mind if they have their 40K already or not. Basically, what is important is if the couple have non-used RRSP contribution. They will just leave more money into their RRSP after the purchase.

    Man from Atlantis, just so you know, FP is right. The bank will tell you to know withdraw your RRSP funds but they have no right over it. Which means that your are totally free to withdraw all the RRSP’s you want without paying your loan. Whatever they tell you is BS. RRSP are not seizable assets.


  14. FrugalTrader on August 21, 2007 at 7:45 pm

    Sorry for the errors there guys, my host is acting up.

    Gates, that was one crazy response. Much appreciated.

  15. WhereDoesAllMyMoneyGo.com on August 23, 2007 at 1:44 am

    The caveat with the RRSP loans is that the money must be in the RRSP for 89 days otherwise you cannot deduct the contribution.

    Aside from the RRSP loan comments, with respect to what to do with the money for investing, their hands are tied. You don’t want to risk your money with only 2 years to go. Having said that, you *could* buy strip bonds at a discount with a maturity in 2 years (AAA Gov Canada strips) – if interest rates go up, then you just hold to maturity and you know what you will get. If interest rates go down, then you can sell them early for a gain since they will get closer to par (ahead of schedule when interest rates go down).

  16. Q Cash on August 23, 2007 at 10:02 pm

    Don’t you think Gates’ response could be a guest post :-)

  17. Man From Atlantis on August 25, 2007 at 12:06 pm

    Hi Guys:

    When you implement a strategy with a short time frame and you are some what dependent on others (bankers) it makes sense to tell them up front what you are going to do. You don’t want to deal with the issues at time of closing. People get different advice from different banks and even the same bank but different branches.

    It is worth checking if you are going to borrow to contribute to an RRSP and then withdraw through the HBP after the 3 months.

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