What is a tax-free savings account?
A tax-free savings account (TFSA) is a type of Canadian tax shelter that allows you to earn interest on a number of investments without having to pay income tax on the money earned. You can many kinds of investments including a traditional savings account as a TFSA. Tax-free savings accounts typically offer lower interest rates than non-registered high interest savings accounts, but interest is earned tax-free. Because there are tax implications and contribution limits, TFSAs are best used for long-term savings goals. TFSAs can only be opened by Canadians who are 18 years of age and older.
Other types of savings accounts
You have to pay income tax on interest earned in non-registered high interest savings accounts, but they often pay higher interest rates making them excellent options to reach short-term savings goals.
Some banks and credit unions offer special savings accounts just for kids, giving them an opportunity to save their own money and learn how banking works.
Canadians 60 and over can take advantage of seniors savings accounts that have lower transaction fees and other perks just for seniors.
How to choose the right tax-free savings account
When choosing a tax-free savings account, there are a few features you should pay attention to, starting with the interest rate. Some accounts offer “teaser” rates that are higher to start, but your money will likely earn more interest in a TFSA that offers an everyday high interest rate. Other features to consider include whether the account charges a monthly fee or transaction fees. You should also be aware of whether the account allows you to easily transfer money back and forth with your regular chequing account.
Best Savings Account Providers