What is a cash account?

A cash account is a non-registered savings account that can be used to reach any financial goal. It’s a flexible account that allows for a wide range of investment options, including mutual funds, stocks, bonds, cash, and other securities.

Why use a cash account?

A cash account will allow you to save for large financial goals without a capped contribution limit. This is beneficial to those who have already maximized contributions to tax-advantaged accounts like RRSPs and TFSAs.

A cash account offers greater accessibility as it doesn’t have the additional costs or fees that are typically associated with registered plans. If you need to withdraw from the account, your money is conveniently available when you need it.

In contrast to RRSPs and TFSAs, which are tax-deferred and tax-exempt respectively, cash accounts are taxable. However, from an “asset location” perspective, cash accounts are helpful in maximizing the after-tax value of your overall portfolio because you can reap the benefits of certain tax-preferred investments or strategies.

What role can cash accounts have in your financial plan?

A cash account allows you to take full advantage of investments that are tax-preferred. For example, if you have a stock that has appreciated, you will get the capital gains exclusion if it was held in a cash account. If that investment was held in an RRSP, you wouldn’t get that benefit.

Before considering a cash account as part of your financial savings plan, you’ll need to know where you’re at with your investments. It’s recommended that you use a cash account only after you’ve maximized your RRSP and TFSA contributions for the year. Using a cash account is also a smart idea if you’re saving for something in the very short term, like a vacation or a vehicle, and you need easy access to your money. If you’re saving for the long term, it makes more sense to put your investments into a registered account first and use the cash account as a vessel for extra savings.

To better understand how this type of account and these strategies will affect your personal tax situation, please consult an appropriate tax expert.