My bank is currently offering an RRSP loan for $15,000. According to their calculator, I would receive a rebate of $6,750 for that contribution. If I spread the loan over 5 years, I pay $275 a month and it will cost me $1,554 in interest (3.95%). Is this loan a good idea, and is it worth it for me?
–Jonathan
The annual buzz around “RRSP season” has quieted a bit since the introduction of the tax-free savings account (TFSA), but contributing to a registered retirement savings plan can still make strong financial sense for many people. Whether an RRSP loan is the right move depends on your tax situation, existing debts, cash flow and investment preferences. Below is a clear breakdown to help you decide.
How RRSP loans typically work
Banks commonly offer RRSP loans at prime interest rates, often for amounts up to $50,000 with repayment terms ranging from one to ten years. Many lenders defer the first payment for about 90 days so a contribution made before the RRSP deadline can generate a tax refund that you can use right away to pay down part of the loan.
Because RRSP loans are priced at or near prime, they can seem inexpensive compared to other borrowing options. Keep in mind, though, banks earn on both the loan interest and any fees associated with the RRSP investments you purchase through them.
Interpreting the tax refund estimate
The bank’s calculator estimating a $6,750 tax refund on a $15,000 contribution implies a 45% marginal tax rate. That signals you are in a high tax bracket, which makes RRSP contributions more attractive because the immediate tax deduction is more valuable. However, online calculators are only approximations: your exact refund depends on your total income, other deductions, provincial tax brackets and the timing and size of the contribution.
RRSP strategy generally works best when you contribute during a high-income year and withdraw in retirement when your income — and therefore your tax rate — is lower. For someone paying a 45% marginal tax rate today, an RRSP contribution is likely worthwhile. Conversely, if you are in a low tax bracket now, a TFSA might be the better choice because withdrawals are tax-free.
Compare the best RRSP savings accounts in Canada
Debt, investment fees and risk tolerance
If you carry high-interest consumer debt — for example, credit card balances at double-digit rates — paying down that debt usually comes before making RRSP contributions. It doesn’t make sense to borrow to invest when the cost of borrowing is far higher than the expected investment return.
On the other hand, for someone comfortable with investment volatility and who invests in low-fee products, using an RRSP loan to capture a large deduction in a high-income year can be logical. If your investment options through the bank are high-fee mutual funds, the benefit from the RRSP deduction can be eroded by ongoing fees, making debt repayment more attractive.
There’s also a behavioural element: paying down mortgage debt creates home equity that some people are tempted to borrow against later, whereas money contributed to an RRSP feels more “locked away,” which can help with long-term savings discipline.
Lump-sum contribution versus monthly investing
With the loan, you’d have $15,000 invested immediately and repay $275 per month for five years. The alternative is to contribute $275 monthly yourself. Historically, lump-sum investing tends to outperform dollar-cost averaging because markets rise about two-thirds of the time, but lump-sum investing carries timing risk — if you invest right before a market drop, you’ll feel it. Regular contributions smooth out that risk and support consistent saving habits.
Borrowing to invest means you pay 3.95% interest and hope your investments earn a higher return after fees and taxes. You also receive a tax refund now with the expectation of paying less tax on withdrawals in retirement. If the loan payments won’t strain your cash flow, the strategy is reasonable. But ask yourself why you couldn’t have contributed regularly before — committing to monthly contributions without a loan avoids interest costs and preserves flexibility.
When an RRSP loan makes sense
An RRSP loan can be a good idea if: you were in a much higher income year (for example, due to a bonus or asset sale), you can comfortably afford the monthly loan payments, and you intend to invest in low-cost, tax-efficient options. If your income last year was unusually high, using an RRSP deduction to reduce that year’s tax bill can be especially valuable.
If, however, the loan would tighten your cash flow, increase the likelihood of taking on other debt, or be used to buy high-fee investments, then it may be wiser to redirect what you’d spend on monthly loan payments into regular RRSP contributions going forward or to prioritize paying down expensive debt first.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products.
Watch: 4 things to consider before putting your money in a TFSA or RRSP
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