Investing inside an RESP

Ann opened an RESP for her three-month old daughter. She is going to invest  $100 each month for her daughter's post-secondary education in the future. Until her daughter turns 6, she will receive this money from the government as the Universal Child Care Benefit. Besides that, she will get Canada Education Saving Grant, which is equal  at least to 20% of the her contributions in the account. It means that the government will add $20 monthly in her RESP. Ann supposes the annual rate of return on the investment to be 6%. She will not pay tax on the investment income as it grows tax-sheltered  in the RESP. 

So, $1440 will be invested in Ann's RESP annually, and the annual rate of return is supposed to be  6%.

Investing outside an RESP

Kate did not open an RESP and decided to save money for her new born daughter's post-secondary education outside an RESP. She is going to sock away $100 monthly. Her investment is supposed to bring her 6% of return and she must pay tax on this investment income. Her marginal tax rate is equal to 33%, therefore the effective rate of return on the investment will be as low as 4% (6х0.67).

So, annually Kate will contribute $1,200 in her account and earn annually 4% of investment income.

In 17 years Ann will have  $41,845 in her RESP.

In 17 years Kate will have saved $29,005 outside an RESP.