A payroll savings plan is an easy, disciplined, and safe way to save for your down payment. Here's how it works:
- You ask your employer to take a set amount of money from your pay and put it into a separate savings account or into Canada Savings Bonds (CSBs).
- Once you set up a payroll savings plan, you don?t even have to think about it. You save automatically.
- Why use a payroll savings plan?
- You pay yourself first, before you spend it.
- You'll see your savings grow every month. You'll get regular statements so you can see how you're doing.
- You know your money is safe. Many payroll plans are designed to help employees buy CSBs. With CSBs, the Government of Canada guarantees your principal and interest. You can redeem them easily when you're ready to buy your new home.
- You get into the habit of setting aside money regularly to pay for your home. That will help you get ready for mortgage payments after you buy.
How can I save money and save taxes at the same time?
If you have never owned a home, you can also save tax while you contribute to your payroll savings plan. Here?s how:
- Ask your employer to deposit money into Canada Savings Bonds. They can do this for you inside a special account called The Canada RSP. This is a no-fee Registered Retirement Savings Plan (RRSP).
- There are no fees to buy these bonds, but you may pay a penalty if you cash them in too early.
- Another option is to have your employer deposit part of your pay directly into an RRSP savings account at a financial institution. You may have to pay fees to open or manage that account.
- In either case, your payroll contribution is deducted from your taxable income for the year, so you pay less tax.
- When you're ready to buy, you can take up to $20,000 from your RRSP for your down payment under the government's . You won't pay any tax on that money as long as you pay it back within the next 15 years. For more information, visit the Canada Revenue Agency's Home Buyers' Plan website.
Remember: Payroll savings can help you save
A payroll savings plan is an easy, safe way to save for your down payment. It's also a great way to get into the habit of setting aside part of your pay for your mortgage.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.