Tax-free savings accounts (TFSAs) are a type of registered plan that earns tax-free interest. High-interest TFSAs act like regular savings accounts but with tax-sheltered benefits.
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Our pick for a low-fee online TFSA
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*Interest is calculated daily on the total closing balance and paid monthly. Rates are per annum and subject to change without notice.
Our pick for a no-fee online TFSA with investment portfolio options
Our pick for a low-fee online-only TFSA
Our pick for an online-only TFSA with free withdrawals and deposits
Our pick for a TFSA with multiple investment options + a competitive bonus offer
Our pick for a no-fee and low-fuss online TFSA
Our pick for a TFSA with investment options + a competitive bonus offer
Our pick for a flexible TFSA with investment portfolio options
NerdWallet Canada selects the best high-interest tax-free savings accounts based on several criteria, including annual percentage yields, minimum balances, fees, digital experience, access to other TFSA investment products, and more. Only TFSAs from financial institutions that are available in more than one province are considered for this list.
The tax-free savings account, or TFSA, was introduced to Canadians in 2009. With this type of account, you are not required to pay taxes on the interest it earns. This is obviously appealing since it’s a way to grow your money even faster than a traditional savings account or non-TFSA high-interest savings account.
» Make sure you understand the basics: How interest rates work in Canada
Banks, insurance companies, investment firms, credit unions, trust companies, discount brokerages and robo-advisors all provide access to TFSAs. Opening one is similar to opening any other type of bank account, as long as you are eligible.
To be eligible for a TFSA, you need to meet all the following criteria:
Both residents and non-residents of Canada can open a TFSA so long as they meet the other eligibility requirements. However, non-residents may be subject to a 1% tax on some contributions.
In most provinces and territories, you must wait until the date of your 18th birthday to open a TFSA. However, once you turn 18, you get the total contribution limit amount for that year. For example, let’s say you turned 18 on July 7, 2021. You’d be able to open a TFSA on that day and contribute up to $6,000 since that’s the TFSA contribution limit for 2021.
However, in some provinces, you can’t open a TFSA until you are 19, even though you start accumulating contribution room at age 18. If you reside in British Columbia, New Brunswick, Newfoundland and Labrador, Nova Scotia, Northwest Territories, Nunavut, or Yukon, the age of eligibility for a TFSA is 19. In this case, you’d get the contribution room for the year you turn 19 and the previous year.
So, let’s say you live in Vancouver and turn 19 on September 9, 2022. On your birthday, you’d have access to a total of $12,000 in TFSA contribution room since the limit was $6,000 in both 2021 and 2022.
Before opening your TFSA, it’s important to be familiar with the rules.
There’s an annual dollar limit on how much you can contribute to a TFSA each year. Here are the TFSA contribution limits since 2009:
Your “contribution room” is the total combined annual contribution limits of all the years you’ve been eligible for a TFSA. Even if you haven’t been investing in a TFSA, you’ve been accumulating contribution room since 2009 for every year that you’ve been at least 18 years old, have had a SIN and have been a Canadian resident.
If you turned 18 in 2013, for example, your lifetime TFSA contribution limit as of 2021 would be $55,500.
Since your investments can grow within your TFSA, having a book value that exceeds the contribution limit is possible. Additionally, since you can recontribute any withdrawals the following year, it’s possible to have a TFSA limit that exceeds what you have been allotted.
For example, let’s say you’ve maxed out your TFSA and you’ve made a capital gain of $20,000. You decide to withdraw that money. Come the new year, you can recontribute that $20,000, plus the additional contribution limit. By doing this, you’ve essentially created an additional $20,000 in contribution room.
You can find out where your TFSA contribution room stands by logging into your “My Account for Individuals” on the CRA website. Alternatively, you can contact the CRA directly and ask an authorized representative about your contribution room.
While this is a quick way to check your TFSA contribution room, it’s not always accurate. Financial institutions typically only report your contributions once a year. That means if you’ve made any additional contributions or withdrawals, the CRA likely won’t have the most up-to-date information.
The best thing to do is to keep your own records of your TFSA transactions. By doing this, it’s unlikely that you’ll ever go over your limit.
Most types of TFSA accounts allow you to withdraw money at any time. That said, some products within your TFSA, such as registered guaranteed investment certificates (GICs), may be locked in, so you may need to wait a certain length of time before you can withdraw them.
Withdrawing funds from a TFSA doesn’t affect your total contribution limit. However, if you plan on replacing the amount you’ve withdrawn, you need to be mindful of your contribution limits.
Any withdrawals you make in a calendar year can be replaced the following year. However, you can’t withdraw and replace funds in the same year unless you have the contribution room available.
There are many different ways to use a TFSA. When deciding the best TFSA for your needs, first consider how you’ll use the account. Some people will use their TFSA for short-term savings, such as a home down payment, while others will use it for long-term goals, including investing for retirement.
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The type of TFSA you set up depends on your goals. But here’s a brief overview of types of TFSAs and what you can do with them.
» See our picks: The best high-interest savings accounts in Canada
A TFSA is pretty straightforward. You contribute any amount up to the current limit and your contributions grow tax-free. What often confuses people about TFSAs is the name. Even though it’s called a tax-free savings account, it can be used as an investment account.
Investment products can be purchased within the account, including:
Because of all the different ways you can use a TFSA, you may choose to open more than one. Just remember that your total amount of available contribution room does not change, and you can’t exceed that limit regardless of how many accounts you have. So, you’ll have to monitor the balances of all your accounts.
In most cases, any gains made within your TFSA are tax-exempt, but there are some scenarios where taxes may apply.
» MORE: How does income tax work?
When you contribute to your Registered Retirement Savings Plan, or RRSP, your taxable income is reduced by the same amount for the year. However, when you eventually withdraw that money, it will be taxed at your marginal tax rate.
With TFSAs, you don’t get a tax break on contributions, but all gains made are entirely tax free.
With RRSPs, you gain contribution room based on your previous year’s income, while TFSA contribution room is a fixed amount that gets set by the government each year.
A high-interest TFSA is a tax-free savings account that pays a higher rate of interest than traditional savings accounts or other types of TFSAs. How much interest you’ll get depends on the financial institution where you have your TFSA. Online-only banks tend to offer higher rates than traditional banks and credit unions, for example.
The term “high-interest” is a bit relative since rates fluctuate over time, and Canada has had record low interest rates in recent years. Still, the interest rate offered is a fairly simple way to compare TFSAs when searching for the best account for your needs.