The best tax free saving accounts (TFSAs) in Canada

The best TFSA for 2023 belongs to EQ Bank which had one of the highest standard interest rates amongst its competitors. This pick helps you grow your money tax-free even faster. This account comes with: 

• CDIC insured
• No monthly fees
• Easy linking to internal or external accounts
• User-friendly online portal

Check out Ratehub's Personal Finance Award winners for 2023 to see our opinion of the best accounts on the market today. 

Looking ahead to 2024, the Canada Revenue Agency (CRA) has officially raised the  TFSA contribution limit to $7,000 due to rising inflation.

In 2023, there was an 8.3% increase in the TFSA limit, rising from $6,000 to $6,500. Typically, the CRA announces these changes late in the year, allowing Canadians to plan contributions. The recently confirmed $500 increase in the 2024 limit will help Canadians combat inflation's impact and maximize TFSA tax benefits.

If you need to make a withdrawal from your TFSA, you should consider making a withdrawal before December 31. Contribution space from TFSA withdrawals is not renewed until the following year - for example, if you withdrew $1,000 in 2023, that amount will only be made available in your contribution space on January 1, 2024. 

TFSAs certainly have a place in someone’s overall portfolio and can help TFSA holders take advantage of tax-free compounding interest to build medium to long-term wealth. Here are some of the pros and cons to consider while deciding if a TFSA is right for you. 

Pros

• Helps to minimize taxes on your investments
• Provides additional flexibility compared to a savings account or RRSP- you’re allowed to invest in mutual funds, stocks, bonds, and GICs. You can use a TFSA to build an emergency fund, save for retirement, save for a home, or all three
• Withdrawals can be made at any time 
• Get more contribution room every year - you can determine your personal TFSA limit with our handy calculator
• Equal contribution room - contribution room is not based on your income
•  

Cons

• No tax advantage at the time of contributions; TFSA contributions can't be used to lower your taxable income unlike RRSPs
• Withdrawals cannot be replaced until the following year
• Penalties will apply should you accidentally over contribute

TFSAs savings account are a great option to grow your everyday savings - but not the only ones available to Canadians.

High-Interest Savings Accounts (HISAs)

Most high-Interest Savings Accounts (HISAs) offer interest over 1.00%. Unlike the TFSA, income tax is charged on interest earned, as it is a non-registered account. They do offer high-interest, however, and are excellent options to reach short-term savings goals. This type of account also comes with compound interest. 

Registered Retirement Savings Plan (RRSP)

A Registered Retirement Savings Plan (RRSP) is a savings plan which offers tax-benefits for retirement saving. Like a TFSA, it comes with a contribution limit.

Youth Savings Accounts

Some banks and credit unions offer exclusive savings accounts just for kids, allowing them to save their own money and learn how banking works. Interest is usually lower, and accessibility is typically limited.

Senior Savings Accounts

Canadians 65 and over can take advantage of seniors savings accounts that have lower transaction fees and other perks just for seniors.

The answer to the TFSA vs. RRSP debate relies heavily on your personal goals, and to an extent, your financial standing. It’s also worth noting you can contribute to both a TFSA and RRSP at the same time.

The advantages of a TFSA is it’s a straightforward tax shelter - helping grow your savings and investments tax-free - while also allowing for flexible anytime withdrawals. This makes TFSAs ideal for general savings and short-to-medium term financial goals as well as for Canadians in lower tax brackets (e.g. anyone earning under $50,000) who may not be in a position to benefit as much from the tax deduction benefits of an RRSP.

Contributing to your RRSP will reduce your overall taxable income for the year (which is beneficial since it serves as a tax break and can increase your tax refund). Whatever amount you withdraw from your RRSP is taxable, but only at the time of your withdrawal; the idea being you should wait to withdraw your RRSP until retirement when you’ll be in a much lower tax bracket and pay far fewer taxes. 

In a Tax-Free Savings Account (TFSA), you can invest in a wide range of assets, including stocks, bonds, mutual funds, ETFs, all GICs all while earning tax-free returns on your investments. It's important to remember contributions limits to your TFSA and any investment income or capital gains earned within the account are not taxed when withdrawn.