The first time a well-meaning parent gives thought to saving for their child’s future, the numbers simply don’t add up. A year of post-secondary tuition. A laptop. Rent. Books. Transit. Food. It all adds up too fast. And then comes the creeping question: “Where do I even start?”
You could open a simple savings account, the type you’ve always used for groceries or vacation money. Or you might venture down somewhat more customized paths, like a Registered Education Savings Plan. But what’s the real difference? And more importantly, what’s actually going to make a difference when that first tuition bill comes due?
Many families take too long to make that decision. Others just make a snap decision without realizing what they’re sacrificing. That’s what this comparison is here to remedy.
If you’re wondering if a plain old savings account will cut it — or if the nuanced advantages of an RESP in Canada are worthwhile — this is for you. We’ll dissect what makes each one effective, how they compound, and what risks and rewards each offers.
Not with vague advice. But with hard realities. With emotional weight. And completely out in the open as to what your future self — and your child — will appreciate down the line.
Basic Facts About A RESP
There’s a reason that the Registered Education Savings Plan (the RESP for short) comes up so often in financial chitchat from coast to coast to coast in Canada. It’s not just a buzzword. It’s a governmentally acknowledged device intended to assist families in planning for the costs of post-secondary education.
But how does it differ from a regular savings account?
Here’s the first: government contributions. If you contribute to an RESP, you may qualify for grants such as the Canada Education Savings Grant (CESG). For every dollar you save privately, the government can add 20 cents, up to a certain limit. That bonus? It’s not something that your ordinary bank account could ever replicate.
And then there’s the tax break. As your RESP grows, you aren’t taxed on the money inside. When your child later withdraws the money for school, they’ll pay the tax — but almost certainly at a much lower rate than you would, because students usually have low or zero income.
But there are, naturally, RESP contribution limits now. You can’t just drop a bunch of money and assume grants will continue to flow. Under current federal guidelines, you can contribute up to $50,000 per beneficiary over a lifetime. But for most families, it will be plenty to help them build a strong financial base.
When A Regular Savings Account Makes Sense (And When It Doesn’t)
The regular savings account — let’s not completely swat it aside. There’s value in simplicity.
You walk into your bank, open an account, and start saving money. No government paperwork. No grant rules. No withdrawal restrictions. Only direct access to your own money, when you want it.
It all sounds great, way, way up — until you start comparing growth.
How many seven-year-old human children have more in their savings account? We’re talking below-inflation returns. Which is to say, your savings could lose purchasing power over the long term. So even if your balance goes up, the amount it can cover in real-world expenses, like tuition or rent, dwindles over time.
And there is no government match, no tax-deferral, no strategy behind how that money is working for you. It’s just sitting there.
That doesn’t make it useless. But if your target is learning — not generic saving — it may not be doing enough.
How does an RESP work if you have more than one child?
A common misconception among families is that one child can use an RESP at a time. That’s not the full picture.
There are two kinds of RESPs in Canada, individual and family plans. If you have more than one child, a family RESP offers you flexibility. You can transfer the savings between children, so if one child doesn’t use the full amount, the funds can still be transferred to another sibling. That’s something you wouldn’t get from an ordinary bank account, where you would either need to split up the money manually or run into a web of withdrawal limits.
Another benefit of a family RESP is that all of your contributions are consolidated under one plan, which is good when you are trying to juggle timelines. Even if your eldest heads off to college in two years and your youngest ten years later, you are still growing the same pool of money efficiently, and frequently more powerfully so because of the long-term lack of compounding.
And keep in mind that even if you have a family RESP, RESP contribution limits apply to each child. That $50,000 lifetime limit? It resets with each beneficiary.
The flexibility matters. Because kids change paths, one child may forgo university and attend trade school. Another might need extra years. The RESP doesn’t hold it against you for being flexible. It’s a plan that adapts as your family does.
What If Your Kid Doesn’t Go To College? Is The Money Lost?
This is one of the most common concerns parents express when they’re unsure about opening an RESP. “What if my child winds up changing their mind?”
It’s a fair question.
If your child decides not to attend post-secondary education, then the money you have contributed to the RESP is yours. You get that back, tax-free. But the government-sponsored grants are clawed back, and you will have to pay tax on the growth on those grants — unless you transfer the money into a registered retirement savings plan (RRSP) if you have contribution room.
So the short answer would be yes, there are consequences if the money is never used for education. But they are not as bad as people may believe. And with a long timeline (RESPs can remain open for up to 35 years), you can afford not to decide early. Some students spend a gap year. Many people return to school as adults. You have time.
With a normal savings account, well, this isn’t even a question. No rules govern the use of the funds. That’s the trade-off. When it comes to Education Savings Plans Canada, you are exchanging some control up front in order to gain a job in the long term. If you keep your money in a bank account, you retain control but forfeit potential growth and bonuses.
The Power Of Compounding: How Growth Really Works Over Time
“How many times have you heard people say that $100 is not very much money? It’s achievable for you to save that — anyone can do that,” Ms. Boykin said. It is particularly difficult to think about such things when you’re counting your beans every day for tuition, or trying to come up with the rent.
But here is where the Registered Education Savings Plan really flexes its muscle: compound growth, especially when you add in government grants.
Let me paint a quick, real-world scenario for you.
Let’s say you invest $2,500 a year this way for 14 years. That’s $35,000 total. The Canada Education Savings Grant could throw in up to $7,200 more. If invested in a portfolio with modest growth inside your RESP, that value could grow to $60,000 or more by the time your child heads off to school.
Compare that to an ordinary savings account, where low interest (often 1% or less) hardly even keeps pace with inflation. In 14 years, that $35,000 could grow to something like $37,500 or $38,000. You’ve saved—but you haven’t grown. And that $20,000 gap could be what stands between your child attending their dream school or having to settle for what’s financially feasible.
A Canadian Education Savings Plan is more than just a vessel. It’s a vehicle. One that’s designed to go faster and further — if you let it.
Which Option Is Better For Low-Income Families?
Families with moderate incomes can often find it difficult to believe that saving for education is realistically within reach. And that’s where RESPs really come through.
In Canada, families who meet certain income criteria are eligible for the Canada Learning Bond (CLB) — a grant that puts money into an RESP, even if the family can’t contribute. It’s automatic when the account is opened and the child is eligible.
That means that some households would see as much as $2,000 deposited in their names, without paying a single dollar themselves. It’s a small wonder that education saving plans in Canada ever do anything that benefits lower income, and does not penalize them.
Regular savings accounts aren’t even close. No automatic deposits. No matching. As much as you can, as fast as the bank will pay.
If your income means you can only contribute small amounts, starting a Registered Education Savings Plan may be one of your only means of creating a meaningful education fund without feeling strapped for cash.
The secret is figuring out how to apply to get those grants — and not letting them go unclaimed from year to year.
Registered Education Savings Plan vs. Regular Savings Account
| Feature | Registered Education Savings Plan (RESP) | Regular Savings Account |
| Purpose | Specifically designed to save for a child’s post-secondary education | General-purpose saving, no education-specific benefits |
| Government Grants | Eligible for Canada Education Savings Grant (CESG) and Canada Learning Bond (CLB) | Not eligible for any government education grants |
| Tax Advantages | Investment growth is tax-sheltered; withdrawals taxed in student’s name (usually low) | Interest earned is taxable to the account holder |
| Contribution Limits | Subject to RESP contribution limits: lifetime max of $50,000 per beneficiary | No contribution limits |
| Eligible Withdrawals | Must be used for qualified educational expenses to access grants and earnings | No restrictions on use of funds |
| Flexibility Between Children | Family plans allow sharing funds among siblings | No built-in flexibility for multi-child use |
| Return Potential | Higher, due to government grants and investment options | Lower, due to minimal interest rates |
| Risk Level | Moderate (depends on investment choices within RESP) | Very low (typically held in guaranteed deposit accounts) |
| Penalty for Non-Educational Use | Grants must be returned; earnings may be taxed with penalty unless transferred to RRSP | No penalties for withdrawal |
| Ease of Setup | Requires application and sometimes a financial advisor | Easily opened at most banks or credit unions |
| Best Use Case | Long-term savings for education with government support | Short-term goals or flexible savings not tied to education |
Final Verdict: Which Is Better?
Let’s put it this way: one size never fits all. But the facts can be difficult to ignore.
- RESPs provide unparalleled growth potential in the form of government grants, tax-sheltered growth, and flexible withdrawals when used smartly.
- They have rules, such as contribution limits for an RESP, and need a bit of planning. But the payoff for that structure can be tens of thousands of dollars in added value over time.
On the other hand:
- Regular savings accounts come with total freedom. No grant requirements. No restrictions. Immediate access. But they also don’t offer much back — not much interest, no tax breaks, and no meaningful ability to help grow your child’s future fund.
In most situations, though, if you’re in it for post-secondary education and are willing to follow a few simple rules, a so-called RESP in Canada is without question the more powerful vehicle.
That said, there’s a place for both. A lot of families use a regular savings account for short-term or unforeseen school-related costs, and then an RESP for long-term growth. It’s not a competition. It’s a strategy.
Your child’s education should not rely on hope. A plan that would actually work is in order.
Learn More: How Does an RESP Affect My Income Tax Return?