TFSA Interest Rates

Tax-free savings accounts (TFSAs) are a great way for Canadians to invest. It’s important to keep in mind, however, that making a contribution to a TFSA is only the first step. The rate of return you receive comes from the investment you purchase inside the account.

TFSA Investment Options

Individuals have a wide variety of choices available when deciding what to do with their TFSA contribution. The government allows many different kinds of investment products to be held within these accounts. These include:

Find the Best TFSA GIC Rates

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Why a Fixed Interest Rate Won’t Get You the Best Return

Investing, as most people realize, is a trade-off between risk and reward. As a general rule, if an investment has the potential for significant gains, it also probably comes with more risk. The reverse is also true. Lower-risk investments typically don’t offer the chance for higher returns.

Looking at the list of investment options above, there are some choices that are more conservative than others. For example, high-interest savings accounts and GICs come with little risk (other than inflation). However, they also don’t offer the potential for very high rewards given that interest rates are pretty low these days.

In contrast, equity investments (stocks, stock index funds, and stock ETFs) are riskier. Yet historically, they do tend to outperform more conservative products such as GICs and high-interest savings accounts. Whereas the best GIC rates these days are about 2%, Canadian equities have historically returned, on average, 6% per year. Of course, there’s no guarantee those returns will be replicated in the foreseeable future.

Offerings from Various Providers

Financial institutions in Canada, such as banks, credit unions, and trust companies offer TFSAs. If you want to put just cash in a TFSA, you have a number of options. Here are the interest rates being offered on TFSA high-interest savings from the major Canadian banks:

Financial Institution Interest Rate*
BMO Bank of Montreal 0.45%
CIBC 0.45%
PC Financial 0.8%
RBC Royal Bank 0.45%
Scotiabank 0.8%
Tangerine 0.8%
TD Canada Trust 0.45%

* as of March 21,2017

How to Get the Best Rates

As with any investment, getting the best rates on TFSA products comes down to doing your homework and shopping around. As you can see in the chart above, rates vary by bank so you shouldn’t feel obligated to stick with your current financial institution if another bank offers a better rate. Smaller financial institutions usually offer higher rates than their larger counterparts.

What to Consider When Opening a TFSA

There are a few things to consider when opening a TFSA. Perhaps the most important is what you plan on doing with the money in your TFSA. Do you plan on using the money for a down payment on a home or a car? Is it the account you want to use to save for retirement? Or do you plan on using it as an emergency fund? What you invest in will depend on your savings goals.

Different people will select different investments for their TFSA. The kind of products you choose and their relative weightings in your portfolio will depend on a number of factors, such as:

  • Your risk tolerance
  • Your age and years until retirement
  • Your level of investment knowledge
  • The time you have to manage and keep track of your portfolio

For most individuals, it’s recommended that they maintain a balanced, well-diversified portfolio. Diversification can protect you by spreading your risk around.