Non-registered accounts: What they are and why they may limit your investing potential

So, you’ve maxed out your Registered Retirement Savings Plan (RRSP) or Tax Free Savings Account (TFSA) and you’re looking for the next move. Or maybe you just want something simple without the hassle of tax rules. Enter: non-registered accounts (also known as cash accounts). Unlike their fancier cousins, RRSPs and TFSAs, non-registered accounts don’t come with any special tax perks.

But before you shrug them off, hear me out — what they do offer is flexibility. You’re not locked into contribution limits or withdrawal rules. It’s like the no-frills option of the investment world. No strings attached, just you and your cash.

This article dives into the mechanics of non-registered accounts, exploring their pros, cons and when they may be the right fit for your investment strategy.

What is a non-registered account? | How it works and examples

A non-registered account is an investment account in Canada that isn't registered with the federal government, offering investors a straightforward approach to managing investments without government-imposed contribution limits or withdrawal restrictions. These accounts are ideal for those looking for flexibility in their investment options.

Here’s how it works: You deposit money into your account, and from there, you’re free to start buying up securities — stocks, bonds, ETFs, you name it. The kicker? You’re paying with the cash you have, no borrowing, no debt. Simple, right? It’s for those who like to keep things straightforward, with no leverage or complicated investment maneuvers.

Examples of non-registered accounts

• Cash accounts: Investors use only the cash deposited to buy and sell securities. For instance, if you deposit $5,000, you can only purchase up to $5,000 worth of stocks or other securities
• Margin accounts: Unlike cash accounts, margin accounts allow investors to borrow money against the securities they already own, which can amplify both potential gains and losses

Tax implications

All income generated from non-registered accounts — whether through interest, dividends, or capital gains —is taxed in the year it is realized.

This contrasts with registered accounts like TFSAs, where gains are not taxed, or RRSPs, where taxes are deferred until funds are withdrawn.

Example of taxation in cash vs. TFSAs and RRSPs

• Cash account: Suppose you earn $1,000 in dividends and $500 from capital gains in a cash account. You would need to include $1,000 in dividends and $250 of the capital gains (as only 50% of capital gains are taxable) in your taxable income for the year
• TFSA: If the same earnings occurred in a TFSA, they would not be included in your taxable income at all
• RRSP: In an RRSP, these earnings would not be taxed until you withdraw the money, which could potentially be at a lower tax rate in retirement

Withdrawing funds

One of the perks of a non-registered cash account? Withdrawing your money is a breeze. No hoops to jump through, no penalties lurking around the corner. Need access to your cash? You’ve got it — simple as that. Unlike RRSPs, where the taxman comes knocking if you pull out early, cash accounts let you take your money whenever you need it, no strings attached.

This makes them a solid choice for anyone who wants that extra bit of flexibility. Whether it’s for a spontaneous trip, a sudden expense, or maybe just to move things around, you can dip into your funds without any of those annoying restrictions you’d face with a registered account. 

Pros and cons of a non-registered account

Understanding the advantages and disadvantages of a non-registered account is crucial for determining if it aligns with your investment strategy.

Pros

• Unlimited contributions: No cap on how much you can invest

• Diverse investment options: Can invest in stocks, mutual funds, bonds, etc.

• Liquidity: Funds are easily accessible at any time, including during retirement

• Simplicity: No borrowing involved, so there’s no interest on borrowed funds

• Flexibility: No contribution or withdrawal limits

• Accessible at any age: No age restrictions, unlike RRSPs which must be converted by age 71

Cons

• Taxable gains: All income earned (interest, dividends, capital gains) is taxed annually

• No tax-deductible contributions: Deposits do not reduce taxable income

• No tax deferral or tax-free growth: Unlike RRSPs and TFSAs, no shelter from taxes

• Higher tax burden: Potentially higher taxes compared to registered accounts

• No leverage: Can only invest the cash deposited, limiting potential for higher returns

• Limited growth: Taxation on annual income can reduce compounding and overall growth

When is a non-registered account a good option?

• Maxing out RRSPs and TFSAs: Non-registered accounts are highly beneficial once you've reached your contribution limits on your RRSPs and TFSAs. As an example, if Sarah has already contributed the maximum allowable amounts to these accounts for the year, she can invest an additional $10,000 in a non-registered account to keep her investments growing without interruption.
• Short-term investing goals: Ideal for investors with short-term financial objectives due to the absence of withdrawal penalties, unlike some registered accounts which are optimized for long-term savings. For example, John is saving for a down payment on a home he plans to buy in two years. He uses a non-registered account to invest in a conservative bond fund, providing him flexibility to access his funds when needed without penalties.
• Low-risk tolerance: Suitable for conservative investors who prefer not to engage in borrowing or using margin, which is possible with margin accounts. For example, Emma invests in stable blue-chip stocks and high-quality bonds¹ through a non-registered cash account, steering clear of the risks associated with leveraged investments.

Alternatives to non-registered accounts

While non-registered accounts offer notable flexibility and ease of access, they lack the tax benefits associated with registered accounts. Consider these alternatives:

• Tax-Free Savings Accounts (TFSAs): TFSAs allow investments to grow tax-free, with contributions and withdrawals also not subject to tax. This makes them exceptionally useful for both short-term and long-term savings goals.
• Registered Retirement Savings Plans (RRSPs): RRSPs feature tax-deferred growth and tax-deductible contributions, which can be especially advantageous if you anticipate being in a lower tax bracket upon retirement.
• Managed accounts: For those who prefer not to manage their own investments, managed accounts offer professional management. This option can provide tailored investment strategies and potentially more growth opportunities, suited for both conservative and aggressive investors.
• Margin accounts: For investors interested in leveraging their investments for higher potential returns, margin accounts allow borrowing against the value of securities in the account. This can amplify both gains and losses, making it suitable for experienced investors with a higher risk tolerance.

Exploring alternatives

Understanding these alternatives can help you make informed investment decisions, particularly if maximizing tax efficiency is crucial to your financial strategy.

For instance, if you are at the start of your career and expect your income to increase, it may be more beneficial to prioritize TFSA contributions before allocating surplus funds to a non-registered account.

Each alternative offers distinct advantages and potential drawbacks, and choosing the right one depends on your financial goals, risk tolerance² and investment timeline.

Non-registered or cash account vs. margin account

When choosing between a cash account and a margin account, it all comes down to your risk tolerance and investment strategy.

➡️ A cash account is ideal if you prefer simplicity, as it requires you to have the cash available for trades, keeping things debt-free and straightforward.

➡️ On the flip side, a margin account allows you to borrow against the securities you own to buy more, which can potentially increase your returns but also ramps up your risk — especially if the market goes south.

This makes margin accounts a better fit for more seasoned investors who are comfortable with higher stakes. Understanding these differences will help you decide which type of non-registered account aligns with your financial goals.

How are non-registered accounts taxed?

Taxation is a crucial aspect to consider when managing non-registered accounts. Unlike registered accounts, all income earned here is subject to annual taxation. Here’s a closer look at how different types of income within these accounts are taxed:

While non-registered accounts don't offer tax deferral or tax-free growth like their registered counterparts, by understanding and strategically managing how different types of income are taxed, you can significantly mitigate your overall tax burden and enhance your after-tax returns. This knowledge is invaluable in planning and optimizing your investment approach in non-registered settings.

Comparing non-registered vs. TFSA vs. RRSP

This table provides a side-by-side comparison of the key features, benefits and tax implications of non-registered accounts, RRSPs and TFSAs to help you choose the best option for your financial goals.

How to invest in a non-registered account

Investing in a non-registered account requires a strategic approach to maximize after-tax returns. First, you’ll need to ensure you meet the basic eligibility criteria, which typically includes being a Canadian resident of legal age (18 or 19, depending on the province). Many investment platforms will require a minimum deposit, but the amount can vary depending on the provider.

If you're unsure how to get started, seeking professional investment advice can help you tailor a strategy suited to your financial goals and risk tolerance.

Platform	Questrade	Wealthsimple	CIBC Investor's Edge
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Minimum deposit	$1,000	$0	$0
Features	Low-fee trading platform with extensive research tools, ideal for DIY investors	Commission-free trading, automated portfolios, and no minimum deposit required, great for beginner investors	Offers a range of tools for self-directed investing with easy access to CIBC products and services
Get started	Go to site	Go to site	Go to site

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Noel Moffatt Writer

Noel Moffatt Writer

Noel Moffatt is a Canadian fintech expert with a passion for simplifying personal finance. Based in St. John’s, NL, he draws on his background in finance, SEO, and writing to deliver clear explanations and actionable advice. Noel is dedicated to equipping readers with the knowledge and tools they need to make informed financial decisions, striving to make personal finance more accessible and understandable through his in-depth articles and reviews.

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