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Everything you need to know about TFSAs

A Tax-Free Savings Account is a great tool that can help you save money for both short-term and long-term goals. Keep reading to understand what a TSFA is, and how you can use one to your advantage.

What is a Tax-Free Savings Account?

A Tax-Free Savings Account (TFSA) allows Canadians to shelter their investments from income tax. The Canadian Government introduced the TFSA in 2009 to help Canadian’s build wealth. You can hold a variety of investments within a TFSA – GICs, bonds, mutual funds and more.

How does a TFSA help you save more money? You don’t have to pay tax on any of the interest, dividends (except for U.S. dividends) or capital gains earned in a TFSA account. So, any money you earn through a TFSA stays in your pocket.  


How does a TFSA work?

We put together a summary of TFSA basics to outline how it works: 
  • 𝗖𝗿𝗶𝘁𝗲𝗿𝗶𝗮 𝗳𝗼𝗿 𝗼𝗽𝗲𝗻𝗶𝗻𝗴 𝗮 𝗧𝗙𝗦𝗔 

You have to be a permanent resident of Canada, 18 years old and have a valid Social Insurance Number (SIN) to open a TFSA. 

  • 𝗪𝗶𝘁𝗵𝗱𝗿𝗮𝘄𝗮𝗹𝘀

You can withdraw as much money from your account as you want, and as many times as you’d like. And, you won’t be taxed on any of the money you withdraw from your TFSA, making it a great option for short-term goals like saving for a car, saving for a home renovation and more. 

  • 𝗧𝗙𝗦𝗔 𝗰𝗼𝗻𝘁𝗿𝗶𝗯𝘂𝘁𝗶𝗼𝗻 𝗹𝗶𝗺𝗶𝘁𝘀

In 2019, the contribution limit for a TFSA is $6,000 a year – keep in mind that if you contribute $5,000 and withdraw it in the same year, you still only have $1,000 worth of contribution room left for the year (you don’t free up space by making withdrawals).

Tip: You can have several TFSAs with the exception that all accounts don’t exceed the contribution limit. 

  • 𝗨𝗻𝘂𝘀𝗲𝗱 𝗰𝗼𝗻𝘁𝗿𝗶𝗯𝘂𝘁𝗶𝗼𝗻 𝗿𝗼𝗼𝗺 𝗰𝗮𝗿𝗿𝗶𝗲𝘀 𝗳𝗼𝗿𝘄𝗮𝗿𝗱 𝗲𝗮𝗰𝗵 𝘆𝗲𝗮𝗿

If you don’t already have a TFSA, you can still take advantage of the unused contribution room from previous years. The contribution limit has fluctuated since the TFSA was first introduced, so you can use the chart below to help gauge how much contribution room you’ve accumulated. You can also check your contribution limit on CRA’s website. 

Example: Someone who was 18 or older in 2009 and has never contributed to a TFSA, would have carried forward $63,500 of contribution room in 2019. 


Contribution limit

2009 - 2012


2013 - 2014




2016 - 2018




  • 𝗣𝗲𝗻𝗮𝗹𝘁𝗶𝗲𝘀

If you exceed the contribution limit, you’ll be charged a penalty of 1% per month. 


Benefits of a TFSA

A TFSA is a flexible investment option, and it helps you reduce the amount of tax you’ll pay on any investment earnings. It’s a great way to save for short term savings since you can withdraw the money whenever you want without penalty (except for any investment restrictions) – consider using it to save for a car, down payment, wedding or for stashing away your emergency fund. If you’ve maxed out your RRSP, a TFSA is also a great option for retirement savings. 

Interest rate on a TFSA

A TFSA is an investment vehicle for a variety of savings accounts. The interest rate on your TFSA will vary depending on how you choose to invest your money. Since you won’t have to pay tax on any interest you earn, you’ll maximize the benefits of your TFSA by choosing an investment that yields a high return. Contact your financial institution to find out which investment option is right for your TFSA. 

How to open a TFSA

You can open a TFSA through any financial institution – your bank, credit union or even with a financial advisor. Your bank or financial advisor will work with you to determine what investment option is best for you, and help set-up any recurring deposits to the account. 

Difference between a TFSA and RRSP:

Tax-Free Savings Accounts and Registered Retirement Savings Plans (RRSP) are both popular investment vehicles, but there are some notable differences between the two:



  • Savings goal: you can use a TFSA to save for both short and long-term goals
  • Criteria: you need to be 18 to begin contributing to a TFSA, and there is no maximum age
  • Income: you aren’t required to have earned income to contribute to a TFSA
  • Contribution limit: $6,000 annually (2019)
  • Tax benefit: Earnings are tax-free; contributions are not tax deductible
  • Your spouse’s account: If you contribute to your spouse’s account, any tax benefits won’t be attributed back to you
  • Withdrawals: You can make withdrawals without any tax penalties
  • Contributions are made with post-tax dollars
  • Savings goal: retirement
  • Criteria: you can start contributing at any age but only until you turn 71
  • Income: you need to have earned income to contribute to an RRSP
  • Contribution limit: 18% of your earned income (minus your pension adjustment) up to a maximum of $26,500
  • Tax-benefit: Earnings are taxed once you withdraw from the account; contributions are tax deductible
  • Your spouse’s account: You can contribute to your spouse’s account and take advantage of the tax benefits
  • Withdrawals: You’ll pay tax on any money you withdraw (unless it meets criteria for the Home Buyers’ Plan or Lifelong Learning Plan)  
  • Contributions are made with after-tax dollars
Interested in learning more? Check out this article that explains everything you need to know about RRSPs

Should I contribute to my TFSA or RRSP?

Whether or not you contribute to your TFSA or RRSP depends on your situation. If you’d like to lower your tax bracket, it’s best to maximize your RRSP first. Then, if you have additional money you’d like to save you can contribute to a TFSA. If you maximize your RRSP and end up with a tax refund, it’s always a great option to re-invest in your refund into a TFSA. TFSAs are also ideal for short-term savings, since you can withdraw money on a regular basis without penalties. However, if you’re over 71, you’re no longer able to contribute to an RRSP, so you’ll want to take advantage of your TFSA instead. 
Since both accounts provide advantages for saving money, it’s a great strategy to contribute to both a TFSA and an RRSP throughout your life. 
Overall, TFSAs are a great option for all Canadians. It doesn’t matter if you’re just starting to save money, or if you’ve been building your savings for a while – everyone can take advantage of the benefits a TFSA offers.