Best Tax-Free Savings Account Rates in Canada for 2023 - NerdWallet (2024)

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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.

• Our picks for the best TFSA HISAs
• Other top high-interest TFSA rates in Canada
• What to know about tax-free savings accounts

Top high-interest TFSA rates in Canada:

**Not available to Quebec residents.

Things to know about Tax-Free Savings Accounts

By Barry Choi

What is a Tax-Free Savings Account?

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

How to open a TFSA

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 bank account, as long as you are eligible.

» MORE: Read our full review of Scotiabank TFSA

TFSA eligibility

To be eligible for a TFSA, you need to meet all the following criteria:

• Be a resident of Canada (or qualifying non-resident).
• Have a valid Social Insurance Number (SIN).
• Be at least 18 years or older.

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.

TFSA contribution room and withdrawals

Before opening your TFSA, it’s important to be familiar with the rules.

TFSA contribution room

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:

• 2009 – $5,000
• 2010 – $5,000
• 2011 – $5,000
• 2012 – $5,000
• 2013 – $5,500
• 2014 – $5,500
• 2015 – $10,000
• 2016 – $5,500
• 2017 – $5,500
• 2018 – $5,500
• 2019 – $6,000
• 2020 – $6,000
• 2021 – $6,000
• 2022 – $6,000
• 2023 – $6,500

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.

Where can I find my TFSA 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.

TFSA withdrawals

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.

» MORE: How to hold a GIC in a TFSA

How to use a TFSA

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.

» DISCOVER: 8 easy ways to start saving money

Types of TFSAs

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.

• High-interest TFSA. This type of TFSA acts like a regular high-interest savings account but with tax-exemption benefits. Since you can access your funds quickly, it’s ideal for short-term savings or an emergency fund.
• TFSA term deposits. You can lock away money for a specified period of time using a tax-free guaranteed investment certificate (GIC) or term deposit. These can be either redeemable, meaning you can cash out early, or non-redeemable. Non-redeemable GICs can offer higher rates of interest than redeemable GICs and high-interest TFSAs, but you won’t have immediate access to your money with this option.
• TFSA investment account. This type of TFSA account allows you to invest TFSA funds. It may be managed by your financial institution or investment firm, including robo-advisors, or it can be self-directed, meaning you manage it on your own.

» See our picks: The best high-interest savings accounts in Canada

Investing your TFSA

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:

• Guaranteed investment certificates, or GICs
• Bonds
• Stocks
• Exchange-traded funds (ETFs)
• Mutual funds

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.

Times you may pay taxes on your TFSA

In most cases, any gains made within your TFSA are tax-exempt, but there are some scenarios where taxes may apply.

• If you exceed your available contribution room, you’ll have to pay a tax of 1% on the excess contribution every month until you get your account back below your limit.
• If you become a non-resident. Now let’s say you have a TFSA and decide to move overseas and become a non-resident for tax purposes. You would no longer gain any new contribution room, so you’d be taxed 1% on any extra deposits if you exceed your total limit.
• If you use your TFSA for business purposes. Your TFSA is meant for personal use only and can’t be used for business purposes. For example, let’s say you decide to day trade in your TFSA. The CRA may consider this business use and tax all of your capital gains at your marginal tax rate. It doesn’t matter if you’re not a professional day trader. If the CRA considers it business use, they’ll tax you accordingly.

» MORE: How does income tax work?