Financial Fitness

How to Make the Most of your TFSA

By Interior Savings
December 14, 2018

As you start to figure out your finances for the upcoming year, keep in mind that you have many different savings options. Right now, we want to highlight one of our favourites for you: the TFSA.

Now, you may be wondering: What makes the TFSA so special? Is it really the valuable investment tool that it’s rumoured to be? Well, we’re here to break it down for you. (And for those of you already riding the TFSA train? You’re in luck! There’s a little something in this article for you, too!)

First up: What is a TFSA?

The TFSA — the short way to say Tax Free Savings Account — was first introduced by our government in 2009 to give Canadians another way to build wealth.

Essentially, a TFSA allows you to hold an investment (including cash, term deposits, mutual funds, stocks and bonds) tax free.

Whatever value your money earns while held in your TFSA — whether that’s interest, dividends, or capital gains — is tax-free. You don’t have to pay taxes on the growth of your original deposit while it’s in your TFSA account; you don’t pay taxes on the growth when it’s withdrawn either. It’s basically the only place where you can earn income that you don’t have to pay taxes on!

(There are some conditions: there’s a limit to the amount of money you can put into a TFSA each year, and there are some types on investments that don’t qualify. You can get those details here: Government of Canada: TFSA Tax Payable.)

How does a TFSA differ from a regular savings account?

Despite its name, a TFSA is so much more than a savings account. Savings accounts deal with cash only, where TFSAs aren’t so limited.

The money you contribute to your TFSA can be invested in a number of different ways. Common ones we see a lot of are: cash, term deposits, mutual funds*, stocks*, bonds* or ETFs*. This gives you more ways to earn, in a more flexible way.

Why have one when you could have many?

There is actually no limit on how many TFSAs you can have, as long as – all accounts combined – you don’t go over your contribution limit. A lot of our members love this because it means they can save for multiple large purchases at one time.

Think about it: you’re saving for your retirement, a down payment on a house, a vacation, and a new car, but want to know where you stand with each one of these goals. Individual TFSAs are perfect for this kind of budgeting because you can designate a separate account for each goal.

Does all of this sound too good to be true? Trust us, it isn’t.

At this point, you’re probably wanting to talk to us about starting, or adding to, your TFSA. (We get it!) Visit your local Interior Savings branch or contact our Investment Solutions Centre to chat with us about opening your own TFSA.

 

 

*Mutual funds are offered through Credential Asset Management Inc. Mutual funds and other securities are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc.