Congratulations! You just put in an offer on a home and your realtor called to say the seller has accepted. Up until this point, you’ve been saving up for a down payment and your closing costs – potentially by putting your money into a couple different savings vehicles. When the seller accepts, however, you’ll need to cash out fast. How fast? Well, every investment works a little bit differently. Let’s take a look at the time it could take to cash out yours.
High Interest Savings Accounts
High interest savings accounts are easy accounts to open, and convenient to cash out of. A high interest savings account is simply a savings account but with a slightly higher interest rate. When you need the cash, you can simply walk up to a bank teller or an ATM to make the withdrawal. As such, this is a great account to save a small amount of money in for closing costs, such as your home inspection or legal fees.
Tax-Free Savings Accounts
Since 2009, tax-free savings accounts (TFSAs) have been a great savings option for potential homebuyers. Not only are you able to save $5,500 in a TFSA annually, you can let it grow and withdraw from it anytime – tax-free. Unlike a typical savings account, TFSAs can also hold a wide variety of investments, including savings accounts, mutual funds and GICs. You can typically cash out a TFSA within 1-3 business days, depending on which type of investment it holds.
Guaranteed Investment Certificates
If you already have some money saved up, guaranteed investment certificates (GICs) are a tool that can help you earn a higher interest rate on it than a typical savings account or TFSA can provide. Of course, that’s only true if you can park it for a while. GICs can vary in terms from 30 days to 10 years. Generally, the longer the term, the higher the interest rate you’ll receive. You can also purchase redeemable GICs and non-redeemable GICs. Redeemable GICs allow you to withdraw your principal prior to maturity (but potentially lose the interest earned by doing so), while the entire amount is locked away until maturity with non-redeemable GICs. No matter which option you choose, if you are thinking of buying soon, make sure you select for the funds to be deposited into your bank account after they reach maturity – otherwise, they’ll rollover into a new GIC.
Registered Retirement Savings Plan
While the account says retirement, many first-time homebuyers opt to use their registered retirement savings plan (RRSP) to fund part or all of their down payment. The RRSP Home Buyers’ Plan (HBP) gives qualifying first-time buyers the option to withdraw up to $25,000 from their RRSP for a down payment. And so long as the amount is repaid back into the RRSP over the 15 years that follow, you won’t have to pay tax on the amount you withdraw. Similar to TFSAs, RRSPs can hold a wide variety of investments, including GICs, mutual funds and other savings accounts. As such, you can’t simply walk up to an ATM and withdraw the amount you need. Once the seller accepts your offer, you then sign the Offer to Purchase. At the same time, fill out Form T1036, take it to the financial institution that holds your RRSPs and withdraw the amount you need for your down payment.
Canada Savings Bonds (CSB)
Canada Savings Bonds are debentures sold by the federal government between October and December 1st of every year, and offer competitive interest rates that are guaranteed for at least the first year. There are two types – Canada Savings Bonds (CSBs) and Canada Premium Bonds (CPBs). CSBs can be purchased in regular or compounding interest, in denominations starting at $100. While CSBs are cashable at any time during the year, CPBs are only cashable on the anniversary date or 30 days thereafter. Cashing out your bonds is easy – simply visit your local bank branch to receive the funds the same day.
What happens if I miss the maturity date? Where do I get the money?
If your funds are tied up before closing day, don’t panic. The first thing you should do is let your real estate agent, real estate lawyer and lender know. Your lender may be able to offer bridge financing or a line of credit. As a last resort, you can ask family and friends to loan you the amount you need. Our best advice is to not wait until the last moment to cash out your investments. Withdraw your down payment at least a week in advance of closing day, so you aren’t left scrambling.