The best TFSAs in Canada for 2023
Tax-free savings accounts offer a place for your cash or other investments to grow. Here’s help with selecting the best product to match your needs.
Tax-free savings accounts offer a place for your cash or other investments to grow. Here’s help with selecting the best product to match your needs.
Tax-free savings accounts (TFSAs) offer a deceptively simple promise: A place where your money can grow without taking a tax hit at the time of withdrawal. However, the value goes beyond that. Unlike their name suggests, TFSAs are more than a simple tax-sheltered savings account.
Since they were launched in 2009, TFSAs have enabled Canadians to hold cash, guaranteed investment certificates (GICs), stocks, bonds, exchange-traded funds (ETFs) or mutual funds within a structure backed by the Canadian government. By taking advantage of this versatility, you can better tailor your financial strategies and goals. Just like selecting the best shows to stream or researching the best places to eat in any given city, there’s a lot that goes into choosing the best TFSA for you. You’ll have to consider many factors, including your use of other registered accounts, like a registered retirement savings plan (RRSP), your life stage, your level of comfort with investing on your own, and your wealth-building strategy.
Keep scrolling for our list of the best TFSA rates and accounts and to learn everything you need to know about TFSAs in Canada.
|Best TFSA savings account rates||• EQ Bank TFSA Savings Account*
• Tangerine Tax-Free Savings Account
• Alterna Bank TFSA eSavings Account
• motusbank TFSA Savings Account
• CIBC TFSA Tax Advantage Savings Account*
|Best robo-advisors for TFSA investing||• Questwealth Portfolios*
• Wealthsimple Invest*
|Best online brokers for TFSA investing||• Questrade*
• Wealthsimple Trade*
A TFSA can be used as a high-interest savings account (HISA), earning you interest on the cash you deposit into it. Using a TFSA this way can be suitable for savers who want to sock money away and watch it grow, tax-free, at an interest rate that is higher than a typical savings account. As with other types of TFSAs, there’s an annual contribution limit, set at $6,000 in 2022 and $6,500 in 2023.
Because the savings rates on these TFSAs may be less than the rate of return on investments, holding only cash in your TFSA can prevent you from maximizing the account’s main benefit: tax-free growth. However, if cash is what you want, pick a TFSA like those listed below, which offer superior interest rates on the money you hold in the account.
EQ Bank offers a TFSA that holds cash and GICs with a 3.00% return—currently the highest regular interest rate on any savings account in Canada, and even managing to beat out the limited-time promotional offers by the big banks. With this account, there are no fees on withdrawals or deposits. Not only will your savings grow faster without fees, but as with any other TFSA, the gains won’t be taxed. That makes this a really safe way to save conservatively. Note that with EQ Bank, you can only have one open TFSA at a time and hold a maximum of $200,000 in your account.
EQ Bank is a subsidiary of Equitable Bank, which was established in 1970 and is Canada’s ninth-largest bank, with billions of dollars under management. This TFSA, like all of EQ Bank’s accounts, is CDIC-insured, meaning that your funds up to $100,000 are federally protected.
Open an EQ Bank TFSA Savings Account*
This tax-free savings account has some stellar features, like no fees and no minimum balances. What makes this account stand out is its promotional offer, which is 3% interest for five months (calculated daily and paid out monthly) when you open a chequing and savings account (including the TFSA). Beyond the promotion period, you’ll still earn 0.1% in this TFSA, too.
For those comfortable only doing their banking online, what Alterna lacks in brick-and-mortar branches, it makes up for with an above-average 2.50% interest rate. With no fees, no minimum investment, and simple “me-to-me” transfers that allow deposits whenever there’s a bit of extra cash around, this TFSA makes it easy for students to keep savings. Because the account is CDIC-insured up to $100,000, you can sleep well knowing your principal remains safe.
If you’re unfamiliar with this institution’s name, don’t let that get in the way of you banking with it. Although motusbank is a relative newcomer in the list of Canadian online banks, it’s owned and operated by Meridian Credit Union, which has been around for 75 years.
With a regular interest rate of 2.50%, the motusbank TFSA Savings Account offers a high rate of return and zero risk. There is no minimum balance, no monthly fees and deposits are insured by CDIC up to $100,000. (Note: motusbank accounts are not available for residents of Quebec.)
There are more perks to this account than just the security of investing with a big brick-and-mortar bank. You can start your TFSA with as little as $25, plus you pay no account fees (aside from potential transfer fees) and you can easily set up automatic contributions.
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If you’ve watched television in the last two years, you have surely seen ads for robo-advisors from places like the RBC and BMO. Unlike self-directed brokerage accounts, these platforms automatically invest money on behalf of the account holder, who doesn’t have to worry about buying and selling individual stocks and ETFs.
Robo-advisors are a good way to invest in a TFSA, because they allow you to take advantage of tax-free gains on a variety of investments while not having to pay significant management fees like with a traditional advisor. (Read our guide to the best robo-advisors in Canada.)
When you sign up for Questrade, you’ll complete a short questionnaire that measures your risk tolerance and investing interests, such as whether you want socially responsible investments (SRIs). For example, the most conservative portfolio has 80% allocated to fixed-income and cash investments. Your principal is not protected as it would be within a GIC or a savings account, but it’s automatically rebalanced to retain diversification with market changes. Other portfolios can be more aggressive with higher risk, but also come with the possibility of higher returns. Once you choose your portfolio, Questwealth does the rest.
Robo-advisors charge much less for management fees than traditional brokerages, and Questwealth is one of the most affordable at 0.25% (on balances of $1,000 to $99,999) to 0.20% (for a balance of $100,000 or more). This means you keep more of the market gains in your pocket. As with any investment, if your stocks fall, so will your balance.
Like other robo-advisors, Wealthsimple offers a streamlined and automatic way to invest without a lot of investing experience. But it stands out for its super-sleek and easy-to-use interface. Wealthsimple Invest uses Nobel Prize-winning research to power its low-fee portfolios and passive investing principles. Both rebalance and dividend reinvestment are automated and with the round-up feature, you can invest spare change left over from your everyday spending. Wealthsimple portfolios cover three broad risk levels—conservative, balance and growth—and they offer socially responsible and halal investing options. (Read for more on halal investing.) Wealthsimple Invest’s management fees start at 0.5% for deposits of $100,000 or less, and go down to 0.4% on deposits of more than $100,000.
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Opening a TFSA with an online broker allows you to take greater control over your decisions and tailor your portfolio just how you’d like it. Instead of being beholden to how your bank or broker decides to invest your money, a self-directed TFSA allows you to save on fees and manage your investments as you see fit. As with other types of TFSAs, those opened through online brokers are subject to an annual contribution limit, and investments grow tax-free.
If you’re comfortable trading individual stocks and ETFs on your own, Questrade (not affiliated with the robo-advisor Questwealth) is a low-fee online brokerage that can empower you to do just that. Questrade accounts can be opened for a minimum of $1,000. There are no fees for purchasing ETFs and buying/selling stocks has a very low commission at just $0.01 per share (or a minimum of $4.95 up to a max of $9.95). This compares very favourably to the flat $9.95 per trade many other online brokerages will bill you. Questrade charges no annual or quarterly admin fees and no low-activity fees.
Weathsimple Trade is the online brokerage of Wealthsimple, and it allows you to trade individual ETFs and stocks on your own in a TFSA. Its biggest selling point is that there are no commissions on trades. It’s a game changing feature—you won’t owe trading fees when buying or selling shares. However, unlike some other brokerages, such as Questrade, you will have to pay a foreign exchange fee when trading American equities. Plus, Wealthsimple Trade doesn’t let you trade mutual funds and lacks any analytics features. If you want to take investing into your own hands, Wealthsimple Trade is an easy and affordable option, but know that it is a mobile-only platform. (See our full review of Wealthsimple’s financial products.)
Qtrade has been recognized for its outstanding customer service, investing tools and analytics. But it also stands out because it lets you purchase mutual funds for free. Neither Questrade nor Wealthsimple Trade offer this complimentary service. However, the commission on ETF and stock trades is slightly pricier at $8.75 per trade for most investors, and there is a $25 quarterly administrative fee. Although both can be waived depending on your age and investment activity. While ETF trading is a growing and popular type of asset, if you’re first and foremost interested in mutual funds, Qtrade is the way to go.A noteworthy perk: Get a $50 sign up bonus when you open a new Qtrade account using the promo code BONUS150 and deposit/transfer $1,000 in assets. Transfer in $15,000 or more and get up to $150. Conditions apply. Offer ends June 30, 2023.
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Watch: What is a TFSA
A TFSA is a savings or investment account that’s registered with the government. If you’re a Canadian over the age of 18, you’re eligible to save or invest in a TFSA up to a certain amount annually ($6,000 in 2022 and $6,500 in 2023), and unused contribution room can be rolled over into future years. A TFSA is a tax shelter; it gives every Canadian of the age of majority in their province or territory some savings or investment room that can grow tax-free.
Some confusion arises from the fact that, despite the name, not every TFSA is a traditional savings account. While you can put cash money into a high-interest savings account or other savings vehicle within a TFSA, it can also hold investments like stocks or bonds, mutual funds, GICs or ETFs. In this way, a TFSA is similar to an RRSP, with the exception that with the TFSA you do not pay tax on the earnings when you make a withdrawal. On the other hand, where you can claim RRSP contributions as deductible on your income tax return, that perk isn’t applicable to TFSA contributions.
TFSAs are flexible. So, you can use them to save for retirement (handy if you’ve used all your available RRSP contribution room), but also for a car, a wedding, a vacation or another savings goal all entirely. Purchase the TFSA product of your choice when you register for the account, and let it earn and grow. When you’ve accumulated the amount you want, you’re free to withdraw it, without penalty and without paying tax.
Let’s break this down:
For retirees, or others whose benefits may be clawed back if their income exceeds a certain level, there’s an additional bonus: Money withdrawn from a TFSA does not count as income, so it will not negatively affect Canada Pension Plan (CPP) payments or other income-tied benefits.
The TFSA contribution limit is the maximum amount you are able to contribute to your TFSAs without penalty. (If you contribute more, you will be taxed equal to 1% monthly of the highest excess TFSA amount in the month, until you take it out of the account.) However, note that your investments can grow within the account without any penalty.
The TFSA annual contribution limit for 2022 is $6,000, and it will increase to $6,500 in 2023. If you have never deposited money into a TFSA before, your lifetime contribution limit is $81,500 in 2022 and $88,000 in 2023. If you have previously contributed, you can calculate your remaining contribution room by subtracting from this limit. Any income earned in the account is not counted toward the limit.
The TFSA was introduced by Canadian Minister of Finance Jim Flaherty in 2008, as part of the 2009 federal budget. The program went into effect on January 1, 2009, when individuals 18 years of age or older, with a valid social insurance number, could begin making contributions. The program’s original intent was to help Canadians save for a new car, renovate a house, start a small business or take a family vacation. But since the launch, it has grown into a way to save for a wide variety of reasons, including longer-term financial goals, like retirement. As of 2021, an estimated 15 million Canadians had a TFSA.
The main difference between a TFSA and an RRSP is how they are taxed. When you withdraw money from a TFSA, you are not taxed. With RRSPs, the money is taxed on withdrawal.
With this in mind, you might be wondering why anyone would choose an RRSP. The answer lies, again, in the tax structure. When you put money into a TFSA, you do not receive a tax credit. But you do with an RRSP, and when you use it correctly, this credit can be a powerful tool. If, for example, you earn enough money to just break into a higher tax bracket, you could contribute to an RRSP and get an exemption that would bring you back into a lower bracket. Very likely, you’ll be in a lower tax bracket when you need to withdraw those RRSP funds in retirement, resulting in a lower lifetime tax bill.
As with all things investing, it’s usually a good idea to diversify. Both TFSAs and RRSPs have their uses as investment products.
Yes, you can have more than one TFSA. But it’s important to note that in the government’s eyes, it’s like one account, in that your TFSA contribution room doesn’t change. The TFSA limit is the limit. That said, it can be a good idea to diversify your TFSA, like you would with your other investments. You can use one TFSA like a savings account and keep the money accessible and liquid as “cash.” And, you can use another TFSA for investments, like GICs, stocks, ETFs or other types of investments. One caveat, though: Avoid withdrawing money from one TFSA to deposit to another. Instead, let the institution transfer the funds for you, so you don’t accidentally make a deposit that could count toward reducing your contribution room.
How do you open a second or third TFSA? It’s the same process as opening your first TFSA. At a minimum, you’ll need to supply your social insurance number and date of birth, but you may also be asked for supporting documents, such as a birth certificate and tax return. Many TFSA products can be opened online. You simply identify the TFSA product you want—like a HISA, GIC or fund—and apply at the financial institution that offers it.
The very best TFSA for you and your particular needs will depend on a few factors, including your savings goals, timeline and appetite for risk. Some TFSA offer strong promotional introductory rates which might help kick-start an account, but in general they’re best for risk-averse investors trying to reach medium- to long-term goals. Your personal comfort with risk will inform the type of TFSAs you invest in. TFSAs in the stock market are inherently riskier than GICs, for example, and may require substantial trading knowledge. Other factors to consider include whether there are any fees or account charges.
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Thank you, you cleared up alot of questions. I will be checking back with you for updates.
If I opened a TFSA account with an online brokerage company and then I have a combination of CASH, ETF, stocks in that account, then do I earn any interest payments from the brokerage, for the CASH amount that remains lying in the TFSA account, without being invested in stocks / ETF?
Can you purchase foreign mutual funds or etfs? Or do they have to be Canadian investments?
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with a qualified advisor.
As of next year if a couple maxed their TFSA that would be a total of 176,000 dollars. If you were not to add another penny over the next 20 years, and get a return of 7 percent (very doable with a balanced portfolio)…you would have 700,000 in 20 years. Compounding at work and best of all the money is tax free.
Just a note with Tangerine if you transfer your funds out of your TFSA (or RRSP) they will ding you a $50 fee.