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Personal accounts

So, what is it exactly?

Let’s start with this: Certain accounts need to be registered with the federal government. TFSAs, RRSP’s, RESP’s—financial institutions have to register all of those. Why? Because the government regulates them. There are rules about how much you can contribute, how much you can withdraw, and the tax people want to make sure you’re following those rules. So what’s a personal account? An account you don’t need to register with the authorities.

Your chequing account? Personal. Your savings account? Personal (well, unless it’s a TFSA). Your stock portfolio? It’s personal (except if it’s in an RRSP or RESP).

What are the pros?

Personal accounts, also called taxable accounts, are the easiest kind of account to open—some banks even let you open one online in five minutes with a couple of mouse clicks. Withdrawing money is also fast and easy: Buying a new pair of shoes with money from your RRSP is foolish and complicated; buying the same shoes with money from your checking account is troublingly easy.

Personal accounts also have the benefit of being as large or as small as you and your financial institution decide they should be. Got an extra $100,000 lying around? Throw it in a personal account! Unlike registered accounts, the government won’t send you a letter charging you an astronomically high penalty for not following the rules.

Is there anything to be careful about?

Because there are no tax savings or tax deferrals in personal accounts, all the interest, dividends, and capital gains earned are taxed immediately. While the tax you pay isn’t as high a percentage as what you pay on income earned from your job, anything is higher than the 0% tax rate on TFSA investments.

And of course, because withdrawing is so easy, personal accounts are not spendaholic-proof the way an RRSP is, so they’re not a wise choice to serve as your primary retirement account.