The best TFSA GIC rates

A tax free savings account (or TFSA for short) is a misnomer; it’s not a savings account but a registered investment account that offers tax-advantages from the Government of Canada and can hold everything from stocks and bonds to yes, GICs. 

All the interest or capital gains you earn in a TFSA are completely tax-free, meaning more money in your pocket. TFSAs offer flexible withdrawals by allowing you to take out your money at any time with no tax burden.

TFSAs do have contribution limits. In 2021, the TFSA contribution limit was $6,000. Any unused contribution room you have from previous years is also carried forward. Your TFSA contribution room starts being calculated from when you turned 18, or if you’re new to Canada, the year in which you became a Canadian resident and received a SIN number. 

You can check your total TFSA contribution room online from your MyCRA account.

You can withdraw the money in your GIC TFSA once it reaches maturity and its term ends (e.g. 1 year). Since the GIC is held in a TFSA, your gains aren't subject to tax and you aren’t required to report anything to the Canadian Revenue Agency (CRA); that’s all done by the financial institution you opened the account with.

Once the GIC matures, most banks and credit unions will either move the funds from your GIC TFSA over to one of their TFSA savings accounts or leave the money as cash in your TFSA. This way, there's no impact on your TFSA contribution room (since the cash is never actually taken out from your TFSA). You can then choose to invest the funds in another TFSA account with the same bank or transfer it to another financial provider to invest it elsewhere all while never impacting your contribution room. 

If you do want access to the money once the GIC matures and withdraw the funds as cash, your TFSA contribution room will be impacted. And it's important to understand how.

When you make a withdrawal from a TFSA, you’ll temporarily lose the contribution room and won’t get it back until the start of the next calendar year. We've created a handy contribution room calculator to let you quickly see how your personal TFSA limit is impacted by withdrawls, but let’s also run through a step-by-step example:

• Let’s say Jon had $20,000 in TFSA contribution room available for 2020 with $5,000 invested in a GIC TFSA
• If Jon’s GIC matured in 2020 and he withdrew the $5,000 as cash, his total TFSA contribution limit would remain to be $20,000. But if Jon decided to reinvest the $5,000 back into his TFSA within the same year, his limit would now fall to $15,000 (withdrawing your funds from a TFSA doesn't change the total amount of room you have available for the current year and your limit won't increase to offset any withdrawals made in the same year). 
• At the start of 2021, Jon would've regained the $5,000 in contribution room, increasing his TFSA room from $15,000 back to $20,000. On a separate note, he would’ve also gained $6,000 in new contribution room for 2021 (TFSA contribution limits for new deposits increase every calendar year; regardless of past withdrawals or deposits).

Understanding how GIC TFSA withdrawals work is important since you’ll want to avoid accidentally overcontributing to your TFSA as doing so can result in fines.  

The short answer is no, you can’t hold any GIC in a TFSA. 

The GIC in question has to be offered as a GIC TFSA by the bank or credit union. You can’t hold an unregistered GIC or a GIC RRSP in a TFSA.

Depending on the bank or credit union, they may offer the same rates across all GIC types (unregistered, TFSA and RRSP) or rates may differ between account types. In some cases, financial providers may not even provide GIC TFSA options. Our table above helps sort out the best GIC TFSAs available in Canada.

Registered GICs are held in investment accounts registered with the federal government that receive unique tax advantages, like RRSPs or TFSAs.

• If your GICs are held in registered accounts such as a TFSA, the interest earned is not taxable.
• If your GICs are held in a registered retirement savings plan (RRSP), the interest you earn is tax-deferred. This means that the interest you earn is not taxable as long as the earnings are not withdrawn from the account.

It is also important to note that the contributions to registered accounts are subject to contribution limits.