# Interest-free RESP Plan -- Advice needed



## Stampeders (Sep 27, 2010)

I've read almost all the post regarding RESP throughout this forum, but I still have a few questions; and I would really appreciate some guidance.

I'm looking an RESP plan which actually invest your money and does not generate any interest. High or low risk, win or lose will be just fine. If the plan accept Alberta Centennial Education Savings (ACES) grant that would be great. My intention is to contribute $100 every months plus lumpsum amount here and there.

My reading through this forum gave me the feeling that TD e-funds account to be the best and heritage group plan to be the worst.

As I understand TD E-fund doesn't accept ACES or you are require to open TD Mutual Funds Account and then convert it to E-funds and will send my info through an email to access my account.

So, if there is another choice that actually better (e.g. Questrade?) and if TD e-fund are worth losing $800 worth of ACES? Can TD E-Funds be interest-free? (if I don’t put any money in bond, gic etc)


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## the-royal-mail (Dec 11, 2009)

No interest? What would be the point?


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## crazyjackcsa (Aug 8, 2010)

I get the idea he wants to reinvest the interest (I think) but it isn't really clear. The E funds automatically do that.


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## Four Pillars (Apr 5, 2009)

I think he is referring to equities when he says "no interest".


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## Four Pillars (Apr 5, 2009)

Assuming there is no annual fee for the TD Mutual Fund account, you might want to consider opening it up and getting the ACES grant in that account. 

You'll need to open it up anyway to get the e-series account started.

You might be able to eventually transfer the ACES money from the mutual fund account to the e-series account, but if not then don't worry about it. Enjoy the free $800.


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## Stampeders (Sep 27, 2010)

Sorry, I should've been more clear about no-interest point. By no-interest I mean, I dont want the money I put in my RESP to generate any interest as it would in a saving account - reason: generating any money through interest is against my beliefs.

Plus, since I can handle market loss, so I want my money to do actual work. As Four Pillar mentioned, example of that would be equities.

Thanks for all the responses.


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## MoneyGal (Apr 24, 2009)

You can buy Sharia-compliant mutual funds and ETFs (which do not generate any interest) to hold in your RESP account (if that would serve your needs).


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## ashby corner (Jun 15, 2009)

please excuse my ignorance, but I have to ask:

what's the difference (belief wise) between earning interest, and money 'working for you'?

thanks.


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## Cal (Jun 17, 2009)

I don't really understand....but if you were making your money do the work, as per above, owning an equity, that would be like being a part owner of a company...I assume that the OP's beliefs allow them to own a company or be a partner in one, and make a profit.

Also...please forgive me for my ignorance if I am wrong...I am just hypothesizing.


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## OhGreatGuru (May 24, 2009)

ashby corner said:


> please excuse my ignorance, but I have to ask:
> 
> what's the difference (belief wise) between earning interest, and money 'working for you'?
> 
> thanks.


There is an old testament prohibition against "usury". The Koran has similar prohibitions, and devout muslims do not believe in lending money for interest.


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## ashby corner (Jun 15, 2009)

*Usury!*

thanks for clearing that up--that makes sense. And I don't want to turn this into a philosophical discussion, but I wonder if the flip side is true: against one's belief to ever PAY interest? (and I don't mean just from a frugality point of view, but inner belief type deal).

I just learned something today, and I wasn't even trying.

thanks OGG.


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## MoneyGal (Apr 24, 2009)

The modern meaning of the word "usury" is an "exorbitant or unlawful rate of interest" - but the original meaning (from the Latin) is simply "interest." 

We touched on the topic of usury earlier this week in the discussion of "reverse prescribed rates" - the Criminal Code of Canada defines "usurious" (using the modern meaning) as 60% interest (APR) or more. (In fact, "usury" is defined as a crime and the rate of 60% is defined as a "criminal interest rate." There are consequences for payday loan companies in Canada - at least one province has begun to regulate the total amount payday loan companies can charge under the usury provisions. Here's a brief Wikipedia reference on this matter.)


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## Stampeders (Sep 27, 2010)

Thanks everybody for all the kind responses.

I agree with the responses above in regard to interest. I'm not 100% interest free, I pay interest on my mortgage -- but that doesn't make it a good excuse to earn some. 



> I wonder if the flip side is true: against one's belief to ever PAY interest? (and I don't mean just from a frugality point of view, but inner belief type deal)


Yes, that is true, I'm not just talking about EARNING interest, also taking about PAYING interest.

To avoid interest, I have all my money in interest-free checking account (I know bank is using that to gain interest, but at least I'm not benefiting from that directly - that's one of the reason I've said that I'm not interest free).

Moneygal, I dont know much about Sharia-compliant mutual funds and ETFs but I'm actively seeking some guidance to check if any bank in Calgary offers this service. Thanks for the response, I really appreciate it.

But on the other hand if simply invest my money in some company (buying shares) wouldn't that be another possibility? Can open an RESP account that way?

Again thanks for all the input.


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## HaroldCrump (Jun 10, 2009)

Stampeders said:


> But on the other hand if simply invest my money in some company (buying shares) wouldn't that be another possibility? Can open an RESP account that way?


Essentially you need an investment that provides returns in the form of capital gains, dividends or ROC.
You could buy common shares in any corporation that issues dividends.
That is the only way to be absolutely certain that your returns do not include any interest payment.
With even 100% equity mutual funds or ETFs (non Sharia compliant, I guess), there is always a chance that some small % of the return includes interest income.

You will need a discount brokerage account to do this.

Also, it is always an option to hold your RESP investment in 100% pure cash throughout the duration of the account.
You said you are ok with no returns on your money.
You will get the $7,200 grant from the central govt. for sure. Plus you may get the provincial grant depending on which provider you open your account with.
Given the state of the markets, you may end up doing better than others by holding all cash for 17 years 

Anyhow, following is the list of RESP providers that offer the different types of grants:
http://www.hrsdc.gc.ca/eng/learning/education_savings/publicsection/new_promoter_list.shtml

I see that good ol' BMO is on that list, but TD is not.
You could look into opening an RESP account with BMO in AB and holding all the money in cash - just don't tell them you plan to do that


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## sprocket1200 (Aug 21, 2009)

wouldn't the grant be interest as well using this definition of interest??

"something added or thrown in above an exact equivalent"

seems like we all just saved a bunch of tax dollars! but I am sure there is some excuse as to why this "doesn't apply" to their beliefs...


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## atrp2biz (Sep 22, 2010)

*zero coupon bonds*

Question: Would zero-coupon bonds be Sharia compliant since the coupons (interest payments) are removed? Could this be perceived as simply capital appreciation (from the perspective of the Koran--not CRA).


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## MoneyGal (Apr 24, 2009)

Nope. Zero-coupon bonds are still considered a form of debt. 

For those with an interest in this topic, here is a list of the six Sharia screening criteria for investments: 

http://stockexchangepakistan.info/shariah-compliant-stocks-at-kse/


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## atrp2biz (Sep 22, 2010)

Hmmm. How about the use of derivatives? If one were risk adverse, a portfolio could contain an underlying (compliant) stock, purchase the put and sell the call. Less trading costs, this would simulate a return equivalent to the risk-free rate.

My google search yields a mix of views on the compliance of derivatives.


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## andrewf (Mar 1, 2010)

Preferred shares?


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## Eclectic12 (Oct 20, 2010)

HaroldCrump said:


> Essentially you need an investment that provides returns in the form of capital gains, dividends or ROC.
> You could buy common shares in any corporation that issues dividends.
> That is the only way to be absolutely certain that your returns do not include any interest payment.
> With even 100% equity mutual funds or ETFs (non Sharia compliant, I guess), there is always a chance that some small % of the return includes interest income.


Hmmm ... maybe and maybe not. 

A lot depends on the level of "interest free" Stampeders wants to go. A former co-worker would not accept corporation shares as he was aware that like individuals, most corporation will stick money in a bank account and earn interest on it. How much of their income was interest didn't matter as his definition was that *any* interest would taint the investment. He would only consider something that stated it was Sharia compliant or he knew the owner personally.

Then too, when I've looked at annual reports, some corporations have a significant amount of money invested - sometimes in GICs, bonds or mortgages which are interest bearing.


So while common shares might look like they fit the bill, only Stampeders knows for sure.


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## DavidJD (Sep 27, 2009)

How come no one respects my beliefs about not paying income taxes? 

Sheesh.


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