The best tax free saving accounts (TFSAs) in Canada
TFSA savings accounts are a great option to grow your savings.
The best overall savings accounts in Canada
Who has the best TFSA rates in Canada?
What are the pros and cons of a TFSA?
What are other popular types of savings accounts?
TFSAs vs. RRSPs: Which one is right for you?
Natasha Macmillan, Business Unit Director - Everyday Banking
What is a TFSA?
A Tax-Free Savings Account (TFSA) isn’t merely a savings account but a registered investment account that offers tax-shelter benefits from the Government of Canada. You can hold a wide range of investments and securities inside a TFSA, including cash, stocks, bonds, mutual funds, guaranteed investment certificates (GICs) and exchange traded funds (ETFs). The reason it’s called a Tax-Free Savings Account is because all the earnings generated by the investments in your TFSA aren’t taxed, that is, your savings are allowed to grow tax-free.
There are limits to how much you can contribute to a TFSA that increase every calendar year. As of 2023, the contribution room increased to $6,500.
How do TFSAs work?
1. How do TFSA contributions and withdrawals work?
There are government-mandated limits to how much money you contribute to your TFSA (aptly known as a TFSA contribution limit). This limit increase with the start of every new calendar year.
In 2023, the contribution limit increased by $6,500. The great thing about TFSAs is that any unused contribution room from previous years carries over.
If you've never contributed to a TFSA before and were at least 18 years old (and a Canadian resident) in 2009 - the year when TFSAs were first launched - your total lifetime contribution limit will be $88,000.
Your lifetime TFSA contribution room begins from when you turned 18, or for newcomers to the country, the year you became a Canadian resident. You can find how much TFSA contribution room you have available online on your CRA My Account profile.
It's also important to know how withdrawals can impact your TFSA contribution limits, as any amount of money you withdraw from your TFSA is temporarily deducted from your contribution room until the start of the next calendar year.
2. How can a TFSA be used?
Depending on your financial goals, there are different types of TFSAs that you can benefit from:
- High-interest TFSA: This type of account acts very similar to a high interest savings accounts, but with the tax-exemption benefits.
- TFSA term deposit: This type of account is lock-in for a defined period of time using a tax-free GIC or term deposit.
- TFSA investment account: This type of account allow you to invest your TFSA funds which can be managed by your financial institution, robo-advisor or online brokerage. Your TFSA funds can be invested in mutual funds, publicly traded securities (stocks, exchange traded funds - ETFs, etc.), guaranteed investment certificates, or bonds.
Natasha Macmillan, Business Director of Everyday Banking
With over a decade of experience in the finance industry, Natasha works closely with Canada's top financial institutions - from banks to credit unions - to help Ratehub.ca's 1,200,000 monthly users get matched with the right banking products. read full bio
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