Personal Finance Insights

How to Maximize Your TFSA Investment

Interested in putting money into your Tax-Free Savings Account (TFSA)? The new limit for 2023 will be $6,500.

What if you’ve never invested in a TFSA before? In that case, you’ll have contribution room of $88,000 if you were at least 18 years old and a Canadian resident since 2009. 

Now, if you’ve ignored the TFSA up until now, you’re not alone. A lot of Canadians give it a pass because they think it’s just meant for savings. They think they can’t get a good return with it. They think it can only be used for high-interest savings or a GIC. Well, we’ve got something to say about that! 

Why investing with a TFSA (not just saving) might make sense for you

They really ought to have called the TFSA the Tax-Free Investing Account (and then it would be the TFIA—but you get the idea). 

Like their older sibling the Registered Retirement Savings Plan (RRSP), TFSAs are a particular type of investment account in which you can hold a wide variety of investments.

You can have a savings account, mutual funds, stocks, bonds or many other types of investments in a TFSA! If you want to go with a low-risk portfolio using your TFSA, you can do that too. Basically, anything you can also hold in an RRSP. However, there is no tax to pay on the investment income and capital gains. Oh, and withdrawals are tax-free too!

So why do some Canadians still think a TFSA is just for savings?

Big financial institutions want cash deposits, since they don’t have to pay you very much for them. They can then lend the money out at a higher rate than they pay you. The banks love to advertise their TFSA interest rate to get new business.

The big banks tend to bombard Canadians with TFSA promotions offering a bit more interest here or there for a few months at a time. These are almost always time-limited promotional rates. Often, they’re just paid on new deposits. And they might only be available for less than six months!

But once those promotional rates expire, you could be left with an embarrassingly low return on your savings. For many Canadians who have had that experience, it’s not surprising that they don’t think of a TFSA as more than a savings vehicle. 

Time to top up your TFSA investing account?

At this time of year, many investors think about contributing to their RRSPs—and that’s a great idea to build up that nest egg. But if you’ve got some short to medium-term purchases you’ve been planning for, then the TFSA might be the better option. Compare TFSAs vs. RRSPs vs. both, what’s best for me?

And while you’re at it, check out the TFSA vs. RRSP: The Journey of $1,000 and see how a TFSA and RRSP compare for long-term investments. If you need help deciding how much to contribute to your TFSA this year, you can use our handy financial calculator for RRSP and TFSA contributions. And if you still need help, chat with your CI Direct Investing financial adviser.