Investing is about the future of your money – so when you choose to invest, you want to do so wisely. One of the things you will need to decide when investing is what type of investment account you want to open.

Let’s talk a little more in-depth about what an investment account is and what the different types of accounts are so that you can choose the best path for investing in your future.

What is an Investment Account?

Simply put, an Investment Account is a type of financial account that allows you to buy and sell investments like bonds, stocks, ETF’s, and mutual funds. The account is what holds on to all of your cash investments.

In Canada, Investment Accounts can be broken down into two main categories; registered and non-registered. 

A Registered Investment Account is an account or plan that is registered by the Government. It includes things like RRSPs, RESPs, and TFSAs. These types of accounts are excellent for growing your savings and receive significant tax benefits.

Depending on what type of investments you hold, your investment may be tax-deferred or even tax-free. With that being said, some people don’t like the rules and regulations that come along with Registered Investment Accounts.

In order to ensure that the accounts are used for their intended purposes, rules are put into place by the government. If not followed, the investor can receive a significant penalty. 

Non-registered accounts, then, are those that the Government does not register. They do not offer any tax or financial incentives, but people may select them because they are more flexible than registered plans.

Unlike registered plans that come with a long list of rules and regulations, non-registered accounts don’t. With that being said, they are taxed at the end of each tax year. 

Registered Vs. Non-Registered Investment Account – Which is the Best Choice?

The type of Investment Account that you choose should be based on a number of factors. First and foremost, it depends on which type of assets you intend to invest in.

Other factors you should consider before selecting an account type include how much you intend to invest, your purposes for investing, and your marginal tax rate. In some cases, age limits may also be applicable. 

If you are unsure of what type of Investment Account is right for you, speak to your financial representative. They will be able to help you go over your different options and talk to you about the benefits of each registered and non-registered accounts so you can select the best option for your needs.

4 Types of Investment Accounts

Aside from Registered and Non-Registered, there are 4 main types of Investment Accounts out there:

1. Brokerage Account

Sometimes referred to as a non-retirement account or taxable brokerage account, a standard brokerage account refers to an account that holds onto investments. These can include things like mutual funds, stocks, bonds, ETFs, and so on.

These types of accounts can be held by one (individual taxable brokerage account) or more people (joint taxable brokerage account). An account opened between two people or more is commonly opened between spouses, though it can be held by any two people, even if non-related. 

Most investors who open Brokerage Accounts choose to open a cash account so that they can purchase investments with the money deposited into the account.

Margin accounts are less common, but also available as an option. When using a Margin Account, money is borrowed from a broker to pay for investments. 

You can contribute as much as you want to a Brokerage Account and can withdraw money at any time. 

If you want to open a Brokerage Account, you must be 18 years of age or older in Canada and hold a Social Security Number. 

2. Retirement Account

A Retirement account is very similar to a Brokerage Account with the main difference being the way they are taxed. Retirement accounts include things like IRAs (Individual Retirement Accounts), Simple IRAs, and SEP IRAs.

Depending on which type of account you choose, you may receive upfront tax breaks or back end tax breaks. 

In order to open a Retirement Account in Canada, you or a spouse must earn a qualified income. Income limits may also be applicable, and there is generally a contribution limit. 

3. Educational Accounts

Educational accounts are those that are used to help save and pay for post-secondary education. You can start one of these accounts for yourself, or it can be opened on your behalf by a relative or beneficiary.

Educational accounts are generally opened by parents for their children to start saving for education at a young age. Distributions are tax-free, though they are not tax-deductible. The owner of this type of account must be 18 years of age or older. 

4. Kids Accounts

Like educational accounts, investment accounts for children cannot be released to the child until they become legal adults. With that being said, they can be set up at any time and for any reason by a legal adult for the child.

For example, a parent can start a child investment account when they first have a baby, but that child will not be able to withdraw that money until they are 18 years or older. Children who earn an income can also contribute to their own accounts. 

How does an Investment Account Work?

When you place your money into an investment account, you can then invest that money into a variety of investment assets like stocks and bonds. It’s important to know that investment accounts are very different from savings accounts.

When you invest your money into a savings account, you earn interest on that money. The more money you put into your account and the longer you leave it in your savings account, the more interest you will make. There is little to no risk involved.

When you make an investment, however, there is always risk involved. With that being said, you can choose where you would like to place your investments based on your risk tolerance.

A good investment advisor can help you to take a look at your different options, dispersing your money in ways that can hopefully bring you the most reward. The greater the risk you take, the higher the reward if it works out. 

How do you Open an Investment Account?

You can open an Investment Account at almost any financial institution in Canada. Just head to your local branch and ask to speak to an investment advisor.

Depending on their availability, you may need to set an appointment to speak with them. An investment advisor is there to help you find the right type of account for your needs and to answer any questions you may have.

Be sure to ask about the different types of investment accounts offered by the institution, and ask about different types of investments you can make through the account.

You should also be sure that you understand any charges and fees involved in your account. If you are not pleased with the fees associated, don’t be afraid to shop around and look at another financial institution. 

In conclusion, an investment account can be a great option if you are hoping to make your money work for you. With that being said, there is always risk involved with investments so it’s best to speak with a financial advisor before making any concrete decisions.

If you don’t have the money to spend, you may be wise to stick with a savings account until you can afford the risk associated with investments.