Non-Registered Account: Definition, Examples, Advantages

What is a Non-Registered Account (Canada)?

Non-registered accounts are taxable investment accounts available to Canadian citizens. As the name suggests, it is not registered with the Canadian federal government. Non-registered accounts are flexible, offer tax advantages, and have no contribution limits. There are two primary types of non-registered brokerage accounts: cash accounts and margin accounts. Cash accounts are investment accounts in which income is taxable in the year earned if there are capital gains, dividends, or interest income. A margin account is a type of cash account that allows customers to borrow money to purchase securities. This process is known as purchasing on margin.

Understanding Non-Registered Accounts (Canada)

Non-registered accounts are investment accounts offered by banks and financial service providers in Canada, as well as mutual fund companies.

Many financial advisors recommend using non-registered accounts for short and long-term investing. These accounts offer a lot of flexibility with consistent liquidity and no contribution limits, as well as a tax benefit. Dividends are taxed on a gross amount but benefit from a dividend tax credit. Capital gains from investments in non-registered accounts are taxable at only 50% of the account holder’s marginal tax rate. However, interest income is fully taxable at the account holder's marginal tax rate.

Non-registered accounts can be used in conjunction with other types of investment accounts including registered retirement savings plan (RRSP) accounts. Non-registered accounts are sometimes compared to RRSPs. RRSPs have specific requirements for contributions and withdrawals. Withdrawals from RRSPs must be reported as income.

An RRSP must be converted to a registered retirement income fund (RRIF) at the account holder's age of 71.

Types of Canadian Investment Accounts

Non-registered accounts and registered retirement savings plans are two types of accounts offered for retail customers through banks and financial service providers. The Royal Bank of Canada is one of Canada’s largest personal banking financial service providers. It offers non-registered accounts and registered retirement savings plans. The Royal Bank of Canada also offers many other accounts, including tax-free savings accounts (TFSA), registered retirement income fund accounts (RRIF), registered education savings plans (RESP), and non-personal accounts.

Royal Bank of Canada non-registered accounts are promoted as easy to use and flexible. Investors can open an individual or joint account, make daily trades, and communicate with other investors through the bank’s community forum. The community forum allows for discussion on all types of investments, provides for a range of investment advice, and allows for investors to compare their portfolios to other investors.

Trading within the non-registered accounts is automated. Trades within the portfolios are $9.95 per trade or $6.95 per trade with 150+ trades per quarter. Investors can buy and sell any type of security offered through the brokerage platform, including stocks, mutual funds, and exchange-traded funds (ETF).

The Royal Bank of Canada also offers margin services with non-registered accounts. Investors have the same flexibility and investment options with a margin account. Margin accounts allow investors to take on additional investment risk through leverage with the goal of achieving higher returns. The margin account offers competitive borrowing rates and the use of securities as collateral. Investors with higher balances are offered lower rates, and rates range from 3.35% to 4.60%.

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