There are few words Canadians love more than “tax-free,” which is why the popularity of Tax-Free Savings Account has been growing steadily since it was introduced in 2009. In case you missed the memo, a TFSA is a registered Canadian account with tax-exempt status, and a TFSA interest rate is often higher than regular savings accounts. But don’t let the word “savings” fool you: though you can use a TFSA as a straightforward savings account, it’s extremely flexible and can hold a variety of accounts, including stocks, GICs, mutual funds, ETFs and more, depending on what best suits your needs and what financial institutions offer the best TFSA rates. For those looking to stash their cash in a savings account, we’ve rounded up the best TFSA savings accounts in Canada to help you get started.
Comparison of the Best TFSA Rates in Canada
|TFSA Account||TFSA Interest Rate||Standout Features||More Info|
|Great rates + unique goal setting feature||Learn More|
|Motive TFSA savings account||2.20%||Unlimited free withdrawals and transfers||Learn More|
|Implicity TFSA||2.10%||Free unlimited deposits||Learn More|
|Alterna TFSA eSavings account||2.00%||Free unlimited transfers||Learn More|
One of Canada’s first and most popular online banks, Tangerine offers an impressive array of accounts (including tax-free investment and GIC accounts). Presently, new Clients who open a TFSA with Tangerine earn 2.10%* interest for the first 5 months on your first Savings Account, and then 0.10% afterwards. Plus, you could earn $150*. There are no minimum account balances and no service fees. You can even set up automatic contributions to your TFSA and monitor your progress towards your savings goals with the bank’s unique goal monitoring feature. Another perk: Tangerine offers free Interac e-Transfers.
Motive Financial is a division of the Canadian Western Bank and deposits are also secured by the Canada Deposit Insurance Corporation. The Motive TFSA savings account offers a regular interest rate of 2.20%, making it one of the best TFSA rates in the country. The account has unlimited free withdrawals and no minimum balance is required. It’s got a fun, straightforward website, which can be an attractive asset for someone looking for an alternative to a traditional bank.
A division of Entegra Credit Union, the Implicity Tax-Free Savings Account also features a solid standard interest rate of 2.10%. There are no monthly fees and no minimum balance required; however, TFSAs are only allowed 1 free withdrawal a month and cost $1.00 per transaction afterwards. Furthermore, if you decide at a future date that you want to transfer possession of your TFSA to another bank, the fee is a whopping $75.00, which is one of the highest fees I’ve seen in Canada among online banks. Deposits are fully guaranteed without limit by the Deposit Guarantee Corporation of Manitoba. The account is open to all Canadians, not just residents of Manitoba.
Alterna Bank is an online subsidiary of Alterna Savings, one of the country’s oldest credit unions. Alterna’s TFSA eSavings account earns you an attractive 2.00% interest rate with no minimum balance and no monthly fee. Though there are no physical branches of this credit union, you can easily link your outside bank accounts to Alterna and there is no charge for transfers. Furthermore, as a member of the Canada Deposit Insurance Corporation, all deposits are protected up to $100,000.
TFSA Rules 101
A lot of Canadians get tripped up on the rules around TFSAs. The essential thing to understand is that any income you make on the money you hold in a TFSA is exempt from tax—even when you make a withdrawal. It’s this tax-free status that makes it different than any other kind of high-interest savings account or an investment account on which you have to pay taxes. Even an RRSP, which does have the benefit of reducing your taxable income, is subject to tax when you make a withdrawal.
Of course, there are a few rules you have to follow. The contribution allowances for TFSAs are very strict. How much money you can deposit to your TFSA is based on your current annual TFSA contribution room, plus any unused contribution room you have from the previous years. Since TFSAs were introduced in 2009, your contribution room only goes back to that date. For 2021, the annual contribution limit is $6,000. Canadians who were at least 18 years of age in 2009 can have up to $75,500 total in a TFSA.
There are also some withdrawal rules as well. Though you can make withdrawals at any time, any funds you take out can only be added back to your TFSA the following year (unless you have contribution room left over from previous years). You can confirm your overall contribution allowance by checking your CRA account.
Over time, a TFSA is an unbeatable way to reap the rewards of compound interest tax-free, which is why every Canadian should have one. To help you get the biggest bang for your buck, shop around and choose a bank that offers the best TFSA rates in Canada.
As Canadians, we’re fortunate to have such a flexible financial instrument like a TFSA that can give our savings a substantial step-up. Because the income in a TFSA is 100% tax-free and you can make withdrawals at any time, it’s the perfect place to park your emergency or bucket-list fund. The best way to maximize the power of your TFSA is to do your research and ensure whatever bank (or banks—you can spread out your TFSA accounts across institutions) you choose has the services you need and offers some of the best TFSA rates available.
But to make the decision easier, here are our two cents. Our top choice for a TFSA at an online bank is Tangerine – you simply can’t beat zero fees and round-the-clock customer service.
Now that you’re in the know, what are you waiting for? Just go for it!