The best TFSAs in Canada for 2021


    What is the TFSA limit?

    The TFSA contribution limit is the maximum amount that you can keep in your TFSAs without penalty. (If you contribute more, you will be taxed at 1% monthly on the highest excess TFSA amount in the month until you withdraw it from the account.) For 2021, if you’ve never deposited funds into a TFSA before, this limit is at $ 75,500. If you’ve already made contributions, you can calculate your lifetime contribution by subtracting from this limit. Income earned on the account will not count towards the limit. Below is the contribution limit for each year, including 2021.

    When did the TFSA program start in Canada?

    The TFSA was introduced in 2008 by Canadian Treasury Secretary Jim Flaherty as part of the 2009 federal budget. The program came into effect on January 1, 2009, when people aged 18 and over with a valid social security number could begin paying contributions. The program’s original intent was to help Canadians save up for a new car, renovate a home, start a small business, or go on a family vacation. But since its inception, it has become a way to save for a variety of reasons, including longer-term financial goals like retirement. As of 2021, an estimated 15 million Canadians will have a TFSA.

    Should I be using a TFSA or an RRSP?

    The main difference between a TFSA and an RRSP is how they are taxed. This means that you will not be taxed when withdrawing money from a TFSA. With RRSPs, the money is taxed when it is paid out.

    With that in mind, you might be wondering why someone would choose an RRSP. Again, the answer lies in the tax structure. When you deposit money into a TFSA, you will not receive a tax credit. But you do it with an RRSP, and when used correctly, that credit can be a powerful tool. For example, if you make enough money to move into a higher tax bracket, you could contribute to an RRSP and receive an exemption that would get you back into a lower tax bracket. Most likely, if you need to withdraw these RRSP funds in retirement, you will be in a lower tax bracket, resulting in a lower lifetime tax.

    As with any investment theme, it is usually a good idea to diversify. Both TFSAs and RRSPs have their uses as investment products.

    Can you have more than one TFSA?

    Yes, you can have more than one TFSA. But it’s important to note that, in the eyes of the government, it’s like an account where your TFSA contribution space doesn’t change. The TFSA limit is the limit. However, it can be a good idea to diversify your TFSA as you would with your other investments. You can use a TFSA like a savings account and keep the money available and liquid as “cash”. And you can use a different TFSA for investments like GICs, stocks, ETFs, or other types of investments. One caveat, however: avoid withdrawing funds from one TFSA to deposit with another. Instead, have the institution transfer the money for you so you don’t accidentally make a deposit that could count towards reducing your contribution area.

    How do you open a second or third TFSA? It’s the same process as opening your first TFSA. As a minimum, you’ll need to provide your Social Security Number and date of birth, but you may also be asked to provide evidence such as a birth certificate or proof of income tax return. Many TFSA products can be opened online. You simply identify the TFSA product you want – such as a savings account, GIC, or fund – and apply for it from the financial institution that offers it.

    Which TFSA type is right for me?

    The best TFSA for your specific needs will depend on a few factors, including our savings goals, your schedule, and your risk tolerance. Some TFSA savings accounts (as opposed to mutual funds for example) offer strong introductory prices that can help an account, but generally they are best for risk-averse investors looking to achieve medium to long-term goals. Your personal risk awareness will determine the type of TFSAs you invest in. TFSAs on the stock exchange are inherently riskier than GICs, for example, and may require significant trading knowledge. Other factors to consider include whether there are fees or account fees.


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