The best TFSA savings accounts in Canada for 2021

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by Ratehub.ca December 2, 2020 / No Comments

  • A Tax-Free Savings Account (TFSA) is a registered account designed to shelter the interest or capital gains you earn from taxes. With the money in your savings accounts and investments growing tax-free, you can pocket higher returns.
  • A TFSA has contribution limits ($6,000 in 2021, or potentially up to $75,500 if you’ve never contributed before). Unlike an RRSP, you can withdraw the money in your TFSA at any time without owing taxes.

Want to compare the best TFSA savings accounts in Canada? Compare TFSA Savings Accounts

 

The Best Tax-Free Savings Accounts (TFSAs) in Canada for 2021

*In-text rates are current as of December 2, 2020.

EQ Bank TFSA Savings Account

  • Interest Rate: 2.30%
  • Minimum deposit: None
  • Monthly fees: None
  • Insurance: CDIC
  • Available in Quebec: No
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EQ Bank is making waves in the Canadian personal finance space with the launch of its all-new TFSA savings account. Earning an unbeatable regular interest rate of 2.30% – the account has zero fees, no minimum balance requirements, and of course, all gains aren’t subject to tax.

As a CDIC member-bank, up to $100,000 of the money you deposit in EQ Bank’s TFSA Savings Account is federally insured. Launched in 2016, EQ is an online-only bank owned by The Equitable Trust Company – Canada’s ninth-largest domestic bank with over $33 billion in assets under its management.


Tangerine Bank

  • Interest Rate: 2.10% for the first five months, 0.10% thereafter
  • Minimum deposit: None
  • Monthly fees: None
  • Insurance: CDIC
  • Available in Quebec:Yes
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Formerly known as ING Direct, Tangerine Bank is a digital bank owned by Scotiabank. It was among Canada’s first online banks.

Tangerine operates entirely online and offers a wide variety of banking and investing products. One of those products is the Tangerine Bank TFSA Savings Account. It currently offers a promotional interest rate of 2.10% for the first 5 months. After the promotional period is over, the rate drops to 0.10%. The promotional rate is one of the best TFSA interest rates in Canada.

The account comes with no monthly fees, unlimited account transfers, and no minimum balance requirements.

Tangerine customers can take advantage of Tangerine’s Automatic Savings Program (ASP) and create a roadmap or financial strategy specific to their savings goals. The bank is also a member of the Global ABM Network, an added bonus for those who are considering opening a chequing account with the bank as well.

Tangerine is available to all Canadian residents.


motusbank

  • Interest rate: 1.10%
  • Minimum deposit: None
  • Monthly fees: None
  • Available in Quebec: Yes
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Motusbank is the digital subsidiary of Meridian Credit Union. A motusbank TFSA Savings Account offers a competitive tax-free savings account interest rate of 1.10%. motusbank customers can enjoy no monthly costs or limits on the deposits that they contribute.

There is also no minimum deposit requirement, meaning customers can open an account today. Additionally, motusbank is a member of The EXCHANGE Network, meaning customers can access near 3,700 ABMs across Canada at no cost.

Investments with motusbank are CDIC insured.

Motusbank is available to residents of Quebec.


Steinbach Credit Union TFSA Account

  • Interest Rate: 1.60%
  • Minimum deposit: None
  • Monthly fees: None
  • Insurance: Deposit Guarantee Corporation of Manitoba (DGCM)
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Steinbach Credit Union is based in Steinbach, Manitoba and was first established in 1941. Steinbach Credit Union offers a tax-free savings account option with an interest rate of 1.60%.

Steinbach also offers a wide variety of investing options, including GICs.

As a Manitoba-based credit union, deposits held at Steinbach Credit Union are protected across Canada by the Deposit Guarantee Corporation of Manitoba (DGCM).


Maxa TFSA Savings

  • Interest Rate: 1.30%
  • Minimum deposit: $5
  • Monthly fees: None
  • Insurance: Deposit Guarantee Corporation of Manitoba
  • Available in Quebec: Yes
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Maxa Financial is a division of the Manitoba-based Westoba credit union, a full-service financial institution first founded in 1963 that manages over $1.2 billion in assets.

Maxa provides some of the most competitive savings and GIC rates in the country, and its TFSA savings account has no monthly fees and offers free Electronic Funds Transfers and deposits (though, e-transfer do cost $1.50 each). In order to open an account with Maxa, you must provide a minimum deposit of $5.

Your deposits with Maxa Financial are provincially insured across Canada by the Deposit Guarantee Corporation of Manitoba.


Alterna Bank TFSA eSavings Account

  • Interest Rate: 1.20%
  • Minimum deposit: None
  • Monthly fees: None
  • Insurance: CDIC
  • Available in Quebec: Yes
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Alterna Bank is a digital bank owned by Ottawa-based credit union Alterna Savings. Alterna Savings is the second oldest credit union in Canada and the first to open its doors in Ontario back in 1908.

Alterna Bank offers a TFSA eSavings Account with an interest rate of 1.20%. There is no minimum account balance requirement or monthly fees.

Alterna Bank also offers various additional spending, saving, and investing options and is a member of the EXCHANGE Network and the ACCEL ABM networks (which means free ABM withdrawals from a network of over a thousand ABMs across Canada.

While Alterna Savings is a credit union, Alterna Bank is a Schedule-1 bank protected by CDIC insurance.

Alterna Bank is available to all Canadian residents.


Motive Financial

  • Interest Rate: 1.55%
  • Minimum deposit: None
  • Monthly fees: None
  • Available in Quebec: Yes
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Motive Financial is a digital bank owned by Canadian Western Bank. The online bank offers a wide variety of banking and investing products, including a TFSA savings account with an interest rate of 1.55%.

Motive Financial offers additional types of banking and investing products. Motive Financial is a CDIC insured institution.

Motive Financial’s Motive TFSA Savings Account is not available to residents of Quebec.


The best TFSA investing accounts in Canada

Reading “tax-free savings accounts” might give off the impression that these sheltered accounts are designed solely to hold savings, but that’s anything but the truth. We would argue the title is a misnomer, as TFSAs can be used to hold virtually any type of investment – from stocks and bonds to mutual funds, and more. And all your capital gains can be collected tax-free.

Below, you’ll find some investment accounts that can help you maximize your earning potential with a TFSA.

Wealthsimple Invest

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Wealthsimple is an investment corporation that offers various options for saving and investing. It’s become the leading robo-advisor in Canada for creating an approachable means to investing for the average Canadian.

Along with a robo-advisor, Wealthsimple also offers an online brokerage, a savings account, and a tax-filing service.

Their robo-advisor offers TFSA options.

Wealthsimple is available to all Canadian residents.


Wealthsimple Trade

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If you don’t want to rely on pre-built portfolios from a robo-advisor and are ready to take investing into your own hands by buying individuals stocks and ETFs, consider Wealthsimple Trade. The online-brokerage is an absolute game-changer and offers a commission-free trading experience with no annual fees, no account minimums, no low activity fees, and no withdrawal fees. Wealthsimple Trade does offer TFSA account options, so you can trade thousands of stocks and ETFs without being on the hook for commissions or taxes.


Questrade

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Questrade is an online brokerage that offers both a robo-advisor service and self-directed trading options. Known for offering a great online experience for competitively low-fees, Questrade is primarily focussed on providing investment products and doesn’t offer a traditional savings account.

Questrade includes TFSA options, letting you invest and realize gains tax-free, and is available to all Canadian residents.


Learn more about tax-free savings accounts (TFSAs)

Below, you can learn more about the tax-free savings account, what it is, and how to choose the right one according to your saving and investing needs.

What is a TFSA?

A Tax-Free Savings Account (TFSA) is a bank account and tax-shelter that can hold savings and various types of investments. They aren’t exclusive to cash savings and can also hold GICs, Stocks, Mutual funds, Bonds, and Exchange-Traded Funds (ETFs).

TFSAs allow for an unlimited number of penalty-free withdrawals and contributions at any time of the year. There are limits to the dollar amount you can contribute to your TFSA, however.

In 2009, the Government of Canada introduced the Tax-Free Savings Account as an initiative to encourage Canadians to save and keep more of their money. The effort resulted in one of the most popular and useful savings and investing tools among Canadians. However, considering that interest accumulated without taxation, a contribution limit was set in place.

Savings placed in a TFSA can help make a significant impact on your savings and the amount of tax you’ll have to pay come tax season—especially if you select a tax-free saving account with a competitive interest rate.

The benefits of TFSAs don’t stop there, either. You can also put different types of investments in a tax-free savings account, such as GICs, Bonds, Mutual Funds, Stocks, and more. All of these investments can grow tax-free.

A TFSA also permits withdrawals and contributions. However, this exception only applies to cash deposits. There is no penalty or taxation on the number of times you contribute or withdraw funds from the account.

TFSAs vs. RRSPs are often compared, as both hold significant benefits to reducing your yearly tax burden. Differentiating and strategically using both accounts properly can alleviate your tax burden even further.

Unless the bank or financial institution issuing the tax-free savings account has its own terms and conditions, TFSAs generally work in the exact same way.

However, Canadians should choose a TFSA with an interest rate above 2%. This interest rate keeps with Canadian inflation. Any interest rates below 2% mean the amount deposited loses value over time, as it does not compete with steadily-rising inflation.

How does a TFSA work?

As a registered account, a tax-free savings account comes with a yearly limit on the amount that an account holder can and hold in an account. This limit is known as a TFSA contribution limit.

A TFSA contribution limit increases at the beginning of every new year for every Canadian resident that owns an account.

Anyone who wishes to open an account must be a Canadian resident and the age of the majority in their province or territory.

For residents of Alberta, Ontario, Prince Edward Island, Quebec, and Saskatchewan, residents who wish to open a tax-free savings account must be 18 years of age.

Residents of British Columbia, New Brunswick, Newfoundland and Labrador, Nova Scotia, Northwest Territories, Nunavut, Yukon must be at least 19 years of age.

What is a TFSA contribution limit?

A TFSA Contribution Limit is a yearly limit to what you can contribute to tax-free savings accounts. The limit increases for every Canadian each year, and any unused amount from the previous year carries over to the following year.

At the beginning of 2021, Canadians received an additional $6,000 in contribution room for their tax-free savings accounts.

Since the introduction of the account, the cumulative contribution in 2021 is $75,500.

Each year, your unused contribution limit is added to the next year’s tax-free savings account contribution limit. Canadians will receive another increase in their contribution room at the beginning of 2022 — and at the beginning of every year following.

Should you exceed your contribution limit, your savings or investments will be taxed at 1% each month. You’ll receive a notice that your limit has been exceeded, however.

What is my TFSA contribution limit?

The TFSA contribution limit is different for every Canadian. While the contribution limit increases each year for every Canadian, your age plays a significant factor in your total contribution room.

If you were 18 or 19 years old—depending on the province in which you reside—or more former in 2009, your total contribution room as of 2021 is $75,500.

Your limit starts the year you turn 18 or 19, and increases the contribution room with each new year.

If you turned 18 or 19 after 2009, your total tax-free savings account contribution limit includes every year’s deadline since you turned 18 or 90. For example, if you turned 18 or 19 in 2021, your TFSA contribution limit is $6,000.

The unused contribution room from previous years carries forward each year. Still, your entire deposits across all TFSAs must remain beneath your cumulative limit.

Below is a chart of every contribution limit since the introduction of TFSAs in 2009. To calculate your limit, add up the amounts since you turned 18 or 19, depending on the province in which you reside.

Year Contribution Limit
2009 $5,000
2010 $5,000
2011 $5,000
2012 $5,000
2013 $5,500
2014 $5,500
2015 $10,000
2016 $5,500
2017 $5,500
2018 $5,500
2019 $6,000
2020 $6,000
2021 $6,000