Which Canadian Banks Have the Best TFSA?

As the name implies, TFSA (Tax-Free Savings Account) in Canada is a type of savings account that provides tax relief on contributions. This means that whatever income you earn in your TFSA won’t be taxed even when you make a withdrawal.

TFSAs are great for savings compared to a non-registered investment account or regular savings account. Another great feature of a TFSA is the flexibility that allows you to hold various financial instruments, including cash, bonds, stocks, GICs, and ETFs, enabling you to optimize your financial objectives.

Best Banks in Canada for TFSA

The current TFSA contribution limit is C$6000. However, individuals who were eligible but failed to contribute in 2021 can still use the 2021 contribution space in addition to 2022.

Read on to find out everything you need to know about TFSAs, including the best bank in Canada for TFSA rates. The TFSA accounts below are on this list because of their ROI, stability, and other advantages.

Disclaimer: Rates and product offerings are always changing so this article might not reflect the current market situation. Please contact your financial advisor before making any financial decisions.

1. Implicitly Financial

An arm of the Entegra Credit Union, the Implicitly TFSA has a lucrative interest rate of 2.10%. There are no minimum monthly requirements or monthly fees attached to the account. However, account-holders can only make one free withdrawal.

Subsequent withdrawals carry a charge of C$1 per transaction. Besides, if in the future you decide to want the contents of your TFSA deposited with another bank, Implicitly Financial charges you C$75, which is one of the most considerable fees you’d ever run into in an online bank.

That being said, all deposits are backed by the Deposit Guarantee Corporation of Manitoba, even though the account package is open to all residents across Canada.

2. Oaken Financial

Oaken Financial is not as renowned as some of the big players in the financial market, but it does punch above its weight class by offering some of Canada’s best GIC rates.

To enjoy this lucrative package, investors must commit a minimum of C$1000 locked-in for one year. While you won’t be able to withdraw at any time until maturity, you get a healthy 1.80% interest rate and guarantee from the CDIC.

3. Alterna Bank TFSA

If you’re tech-savvy or you enjoy carrying out your financial transactions on the internet, Alterna Bank has one of the best TFSA rates in Canada for your money. 

The interest rate is a whopping 1.20% without charges or minimum balances. The CDIC insures deposits in Alterna bank TFSA up to C$100,000, and you can rest easy knowing your money is in safe hands.

4. Motive Financial

Motive Financial TFSA offers a standard interest rate of 1.550%, making it one of the best banks in Canada For TFSA. There are no drawbacks with this account because withdrawals are unlimited, and you don’t need to maintain a monthly minimum balance.

The website is trendy and straightforward to navigate, making it an irresistible bank for customers who need a refreshing change from a traditional bank. What’s more, deposits are covered by the Canada Deposit Insurance Corporation.

5. Tangerine

Arguably, Canada’s most popular online bank, Tangerine, has various mouthwatering financial products that leave customers craving for more. Its TFSA provides 2.10% interest for the first five months for new customers and 0.10% after that.

There is also the exciting possibility of earning an extra C$150 if you meet certain conditions. Tangerine’s TFSA has no service fees or monthly minimum requirements, while Interac transfers are free of charge.

6. Motusbank TFSA

You just might be fooled to think motusbank has nothing to offer because of its relative obscurity, but that is so far from the truth. Despite being one of the newer online banks, motusbank is wholly owned by the Meridian Credit Union that’s been in existence for 75 years.

At 1.10%, the regular interest rate might not seem much, but it offers a stable return with no risk. Furthermore, you’re not mandated to maintain a minimum balance and zero monthly fees.

The Canada Deposit Insurance Corporation guarantees all deposits to a maximum of C$100,000. motusbank also gives account-holders access to more than 3700 ATMs spread out across the country.

*This package is unavailable for Quebec residents

7. Wealthsimple

Another household name in the investment market, Wealthsimple, provides a simple and easy process to invest your funds for a low fee.

Wealthsimple is more investment banking than saving, but it also provides an avenue for investors to deposit funds into TFSAs or use the funds in a TFSA for other investments, including exchange-traded funds.

8. Hubert Financial

Created by the Sunova Credit Union, Hubert Financial offers a more than the respectable rate of 1.30%. Also, all deposits are guaranteed by the Deposit Guarantee Corporation of Manitoba.

The TFSA has no minimum balance requirement or monthly service charges. The interest accrues daily and is paid monthly.

TFSA for Beginners

Many Canadians find it challenging to adhere to the guidelines of opening and operating a TFSA. However, the most important thing to know is that the income you earn on money in a TFSA is tax-free. And the same holds true even when you make a withdrawal.

That tax-free feature distinguishes TFSAs from other types of investment packages or HISAs that mandates you to pay a tax. On the other hand, RRSPs provide you tax relief in the form of tax credit but is taxable when you withdraw money.

Another issue subscribers encounter is the contribution limit, and the penalties imposed when you go beyond your contribution room for the year. And if that’s not enough for you to chew on, you’d still have to confront withdrawal rules as well.

While you’re allowed to make withdrawals whenever you like, note that the funds withdrawn can only be replaced the following year, except you’ve got additional contribution room from previous years.

If you don’t know how much contribution room is available to you, check your CRA account. In the long-term, a TFSA is one of the best ways to grow your wealth without the setback of taxes to slow you down.

FAQs

What is a TFSA?

Introduced by the Canadian government in 2009, TFSAs provide Canadians with the opportunity to save money for all sorts of purposes, including retirement and education. TFSAs are a staple part of the Canadian financial plan because account-holders can keep and grow their investments without tax incursions by the government.

Canadians above the age of 18 can sign up and deposit money into a TFSA up to C$6000 (for 2020), and unused contribution space can be used in subsequent years. A TFSA is not your average savings account – at least not all of them.

It is possible to house a HISA inside a TFSA and still use it to hold other financial instruments like GICs, bonds, stocks, ETFs, and mutual funds. A TFSA shares similar features with an RRSP. The only difference is, TFSAs aren’t tax deductible like an RRSP when you withdraw cash. 

What is a TFSA Contribution Limit?

A TFSA contribution limit is the maximum amount of money you can deposit inside a TFSA without incurring a penalty. The contribution limit varies from year to year. For instance, the contribution limit for 2015 was up to C$10,000.

In 2020 the contribution limit is down to C$6000. Arguably the best feature of TFSAs is the ability to roll over unused contributions. If you’ve never saved money in a TFSA since its inception in 2009, you potentially have C$69,500 worth of tax-free contributions for your savings.

 Is it Better to put money in TFSA or RRSP?

The main distinction between a TFSA and an RRSP is that TFSA is not tax-deductible while RRSP is tax-deductible. When you receive money from a TFSA, you don’t pay a tax. On the other hand, RRSP gets taxed upon withdrawal.

At this point, it is logical to wonder why anyone in their right senses would put their money in an RRSP. The reason once again is tax. Cash and other financial instruments in a TFSA do not get a tax credit, but RRSPs get a tax credit.

When used correctly, a tax credit can help you save significant sums of money. For instance, if your income is just enough to take you into a higher tax bracket, an RRSP contribution can help you drop into a lower tax bracket. When you’ve retired, and it’s time to withdraw your RRSP funds, you’ll pay a lower tax bill.

That being said, it makes financial sense to diversify your portfolio. Your best bet is to deposit funds in both investment products.

Can I have 2 TFSA Accounts?

Yes, you can. It is possible to own multiple TFSAs however, the total contributions in the different accounts must not exceed your total contribution limit.

Is TFSA better than a Savings Account?

TFSA is better than a regular savings account because you do not have to pay a tax on the interest you earn. You also have the benefit of withdrawing your money at any time, just like a regular savings account.

Conclusion

The TFSA is a flexible financial package that helps Canadians grow wealth. The best way to extract the best per of mace from your TFSA is to research ahead of time and find the best financial institution for your needs.