Reach your savings goals with a TFSA

Got questions about TFSAs?


In 2009, the federal government introduced the Tax-Free Savings Account (TFSA) program, designed to help Canadians save more throughout their lifetime. And, as a way to encourage use, it offers flexible features and tax-free growth – two TFSA benefits that make this registered account one of the best and easiest ways to reach your financial goals.

What is a TFSA?

A TFSA is an account that can hold cash savings, as well as common investment vehicles like mutual funds, segregated funds, and more. Unlike conventional savings and investment accounts, however, you pay no tax on the interest income, dividends or capital gains you earn within a TFSA. Account withdrawals are also tax-free, offering financial flexibility. So, what is a TFSA? It’s a way to grow your savings without losing a portion of that growth to taxes.

How does a TFSA work?

Let’s assume that you open a TFSA and invest $6,000. At the same time, you invest another $6,000 into a non-registered account. If both accounts earn 5% interest per year (compounded annually), you’ll make $300 in each account over 12 months. While you can withdraw and spend the full $6,300 from your TFSA, account growth in the non-registered investment is taxed as part of your annual income. If your marginal annual tax rate is 25%, your after-tax earnings in the non-registered account would be cut to $225.

That amount may not seem significant over one year, but when you factor in future contributions and compound interest in the years ahead, tax savings from a TFSA can quickly add up. By making the same contributions to the two accounts for 10 years – assuming all other factors stayed the same – your net TFSA earnings would exceed those of the non-registered account by $5,363.

And it gets better. While the government sets annual contribution limits for TFSAs (which change periodically to reflect inflation), your unused room carries forward from year to year. That means you may be eligible to contribute more than the annual maximum. Learn more about making TFSA contributions and withdrawals.

What is a TFSA used for?

As a powerful savings tool, a TFSA benefits all or most Canadians. Anyone aged 18-plus can open a TFSA with an issuer, like a bank, insurance company, credit union or trust company. The question, then, is how does a TFSA work for different age groups?

Here are some common ways to make the most of your contributions, wherever you are in life:

  • Young adults: Save your extra cash for a car, a wedding or your first home.
  • Middle-aged adults: Take advantage of tax-free savings to build your emergency fund, to save for a family vacation or home renovation, or to supplement a child’s education savings.
  • Seniors: Use a TFSA to provide additional income during retirement, and as a tax sheltered way to continue saving for the future.

And whatever your income level or financial situation:

  • Low-income earners: Withdrawals from a TFSA do not impact your eligibility for income-tested benefits. And all eligible TFSA account holders receive the standard indexed increase to contribution room.
  • High-income earners: Even if you’ve maximized your RRSP contributions, you can continue to save for retirement.

What are other TFSA vs savings account considerations?

A TFSA is designed exclusively for saving purposes. Because your money’s growth isn’t taxed, the same investment amount will grow quicker within a TFSA than within a non-registered savings account.

However, there are limits to how much you can contribute, so a non-registered account can still be useful for topping up your savings. You wouldn’t want to use a TFSA for your regular banking activities, like buying groceries, paying bills, etc. In that case, your money wouldn’t have the time to benefit from tax-free growth. It would also prove much more difficult to track your annual contribution limits and ensure that you’re saving within them. If you need your TFSA savings to pay for expenses, be sure to first transfer those funds to a chequing account.

Get started early

The earlier you start, the more time you’ll have to take advantage of the TFSA benefits and grow your money.

So, now that you know the basics, are you interested in taking a deeper dive?


I’d like more TFSA details
I’d rather explore RRSPs

*In the province of Quebec, the authorized representatives are Financial Security Advisors who have been duly certified by the Autorité des marchés financiers.

The information contained in this report was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete and it should not be considered personal taxation advice. We are not tax advisors and we recommend that clients seek independent advice from a professional tax advisor on tax related matters. Mutual funds are offered through Co-operators Financial Investment Services Inc. to Canadian residents except those in Quebec and the territories. Segregated funds and annuities are administered by Co-operators Life Insurance Company. Co-operators Life Insurance Company and Co-operators Financial Investment Services Inc. are committed to protecting the privacy, confidentiality, accuracy and security of the personal information that we collect, use, retain and disclose in the course of conducting our business. Visit www.cooperators.ca/en/PublicPages/Privacy.aspx for more information. Co-operators® is a registered trademark of The Co-operators Group Limited.