- Higher fees than a family or individual plan set-up at your regular financial institution. Most group programs function through direct sales so to cover the commission costs you will be paying high start-up fees. Avoiding fees altogether is nearly impossible, but you’ll save yourself money by going it one your own.
- Annual investment returns can be quite small because group plans are tied to fixed income products; higher security but lower yields. There are restrictions in place as to what the administrator can and cannot buy, and this usually limits them to conservative, more secure investment options. Your additional return banks on a portion of the beneficiaries in your group not going to school.
- Additional restrictions on contributions and withdrawals may also exist. Most plans will lock you a set deposit amount that can either be made monthly or annually. There’s no flexibility if you lose your job or need to redirect savings temporarily. And when your child does start attending post-secondary schooling, the withdrawal rules can be equally as inflexible. Regular plans allow you to pull out funds for part-time or full-time students and you can even pull out more money than you might need. Withdrawals from group plans are often limited to only full-time students, and there are more limits on how much money can be taken out at one time. Withdrawals can (with some plans) even be declined if your child doesn’t go to University right after high school. What the what? You NEED to read the fine print before signing up for anything.
Although RESP group plans can be quick and easy to set-up and will force you into saving, the lack of flexibility and high fees outweigh any pros. Before signing up for one, you need to make sure you know all the restrictions and limitations before you start making deposits. You will likely figure out that you are better off just setting up and plain old individual or family RESP plan to give yourself more flexibility and control.