It’s natural to think that maximizing government grants are the best way to take advantage of the Canadian Registered Education Savings Plan, but you’d be mistaken.

The restrictions on plan contributions are relatively simple. You can contribute a maximum of $50,000 per beneficiary. Still, only the first $2500 contributed each year will attract the 20% Canada Education Savings Grant (CESG) to a maximum grant of $7200 per beneficiary.

To maximize the grant, you can contribute $2500 per year for 14 years to collect $500 per year in grant money. Then contribute the last $1000 to collect the final grant of $200. This scenario means you’ll contribute a total of $36,000, receive the maximum $7200 in CESG, and at 5%, you’ll amass $76,500 when the child begins university.

However, due to the magic of compounding, you’re better off contributing the whole amount upfront instead of periodic savings. If you don’t believe me, here’s the math.

Contributing $50,000 when the child is born will attract $500 in CESG. You will forgo the rest of the $6700 CESG, but compound returns will make up more than the difference. After 18 years, your investment will be worth $121,500. To make the comparison fair, consider a contribution of $36,000 when the child is born, only collecting $500 CESG. What do you think the value of the plan will be compared to periodic savings?

You’ll have over $11,300 by giving up most of the CESG and contributing the funds upfront.