Best TFSA Accounts for Canadians

Best TFSA Accounts for Canadians in 2022

Best TFSA accounts

According to Statistics Canada, more than 15 million Canadians currently hold TFSAs, and the total value of those TFSAs is more than $71 million. In fact, TFSAs have become more popular than RRSPs as a vehicle for both saving and retirement. TFSAs offer a distinct advantage to Canadians. While you won’t receive a tax deduction for contributing, you also won’t be taxed when you do withdraw your money, and you can withdraw it at any time. However, the real advantage of the TFSA is that you also won’t pay taxes on any investment profits or interest you make on the money in your TFSA.

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Best TFSA Accounts in Canada for 2022

When you withdraw funds from your TFSA, that amount is added back to your available contribution limit. This contribution limit continues to accumulate every year. So, Canadians born in 1991 who have not invested in a TFSA or have withdrawn their TFSAs could have $81,500 in contribution room available to them. 

What is the best TFSA investment? That depends on your interest, investment skills and time, as well as your investment and savings goals. 

Best TFSA Savings Accounts in Canada

TFSA savings account work just like regular savings accounts, except that any interest you earn on the money in the account is tax-free. Many banks, credit unions and other financial institutions offer TFSA savings accounts, but most banks offer far lower interest rates than their competitors.

While TFSA savings accounts don’t generally produce the returns you can realize with a GIC or investment account, TFSA savings accounts are a great option if you will need the money in your TFSA within the next year or two. Here is a list of some of the best TFSA savings account options in Canada:

TFSA Account
Interest Rate
Fees
Min. Balance
 

EQ Bank

1.25%
None
None

Steinbach
Credit Union

1.35%
None
$500

Motus Bank

1.25%
None
None

Alterna Bank

0.90%
None
None

Manulife

1.5%
None
None

*All rates as of March 2022

EQ Bank Logo 1

EQ Bank provides the best high-interest savings accounts rates and GIC investments in Canada, with flexibility and no fees.

TFSA GICs in Canada

Guaranteed Income Certificates (GIC) are another option for your TFSA account. GICs offer a middle ground between lower interest savings accounts and higher-risk investment accounts. The only caveat with a GIC account is that you must leave your money in the account for a specific period, referred to as the term. Essentially, the longer you can hold on to the GICs, the higher the rate of interest you can earn.

Terms can range from as little as 90 days to as long as ten years or more. TFSA GIC rates are often different from a non-TFSA GIC rate, so be sure to check that you are looking at the TFSA rate.

Here are a few current TFSA GIC rates and terms for you to compare:

TFSA Account
Interest Rate
Min. Purchase
Term
 

EQ Bank

2.10%
$100
1 Year

EQ Bank

2.80%
$100
3 Years

EQ Bank

2.95%
100
5 Years

Oaken
Financial

2.15%
$1000
1 Year

Oaken
Financial

2.70%
$1000
3 Years

Oaken
Financial

2.85%
$1000
5 Years

*All rates as of March 2022

TFSA Mutual Funds in Canada

You can invest in TFSA mutual funds in two ways, directly through a mutual fund offered by a financial institution or via a self-directed TFSA investment account. Including mutual funds in your TFSA provides several advantages. Since mutual funds are a collection of investments, including stocks and bonds, they are naturally diversified. This offers your investment some protection from risk.

Investment experts manage mutual fund investment which means you will benefit from the expertise of someone who knows when to sell and when to buy specific investments. Unfortunately, you will also have to pay for this service in the form of management fees of 1% to 3%. You also won’t have any control over your investments. There is also no guarantee that you will earn a profit with a TFSA mutual fund.

Mutual funds can come in several forms, all of which can be leveraged in a TFSA. These include:

  • Equity funds which hold a collection of stocks
  • Fixed Income Funds contain a collection of government and corporate bonds
  • Balanced Funds have a combination of equity and fixed-income funds
  • Money Market Funds include government treasury bills and short-term bonds
  • Index Funds hold stocks that mirror a specific stock exchange or index

Which mutual fund you choose for your TFSA will depend on your risk tolerance and how long you intend to hold the investment. Research past rates of return and any fees attached to the mutual fund before you invest.

TFSA Stocks and ETFs in Canada

Stocks and exchange traded funds (ETFs) can both offer a far greater return, maximizing the tax savings capabilities of your TFSA. However, this also means assuming more risk. Investing in stocks requires opening a self-directed TFSA investment account with a bank, investment firm or online broker. You can get ad-vice from a broker, which you will pay for, or you can try investing in stocks on your own if you have the knowledge and the time to spend on research.

ETFs work a little differently. Essentially an ETF is a basket of stocks or bonds, or both. Although similar to mutual funds, ETFs tend to be low-cost. And, unlike mutual funds, you can easily purchase and sell off ETFs securities. In other words, if you need the money from your TFSA ETFs, it will be available to you. The additional bonus of ETFs is that you can get instant diversification and the ability to purchase in small amounts.

An all-in-one ETF, which combines a pre-determined balance of stocks and bonds, can simplify your TFSA investment strategy. They’re available in balanced, con-servative and even more aggressive bundles. You can also choose to invest in ETFs that include investments from specific industries, geographical regions or even ETFs that mirror particular markets.

Online brokers, such as Questrade or Wealthsimple Trade, are a great way to get started with TFSA stock trading or ETFs.

Questrade

For investors who want to manage their TFSA investments on their own, online broker Questrade offers Questrade Self-Directed Investing. There are no account opening fees, no annual TFSA account fees, no commissions on buying ETFs and low commissions on stock trades. From your trading account, you can invest in various products, including stocks, bonds, ETFs, mutual funds, GICs and precious metals. Questrade trading allows you to manage your transactions from your computer or a mobile device. They also offer an advanced trading platform for more savvy, advanced investors. To open a trading account, you must invest a minimum of $1000 in your TFSA account.

QuestradeLogo
Start investing today with a complimentary $50 in free trades for any account activation of $1,000 or more.

Wealthsimple Trade

Wealthsimple Trade is online brokerage Wealthsimple’s option for self-managing your TFSA portfolio. Through your no-commission Wealthsimple Trade account, you can purchase fractional shares, stocks, bonds, GICs and any other investment that the CRA allows. There is no commission for Wealthsimple trades on Canadi-an stocks and no account minimums. If you want to trade in stocks, you will pay a 1.5% currency conversion fee, but for $10 per month(Pro membership), you can get unlimited access to USD accounts, including access to ETFs and stocks with no conversion fees. You will only pay the conversion fee if you move money between your Canadian and US accounts.

WealthsimpleLogo

Get a $50 bonus when you open and fund your first Wealthsimple Invest account* (min. $500 initial deposit).

Best robo advsiors for TFSA Accounts in Canada

Essentially robo-advisors take your TFSA and invest on your behalf in a collection of investments focused on your acceptable level of risk. These automated investment advisors offer a variety of pre-built portfolios and manage them on your behalf, buying and selling assets and rebalancing as necessary. Two of the best known Robo advisors are Wealthsimple Invest and Questwealth.

Wealthsimple Invest

Wealthsimple advertises their TFSA Wealthsimple Invest accounts as investing on autopilot. Essentially, these accounts invest your money on your behalf in a wide variety of ETFs. You simply choose your risk level. This type of account also automates other investment actions. You can automatically have dividends reinvested, and the robo-advisor automatically rebalances your investments as the market changes. Wealthsimple Invest also offers access to several unique portfolios for socially responsible investors and Halal investing, among others. The management fee for Wealthsimple Invest is 0.5%.

Questwealth

Questrade also offers a robo-advisor version of its investment services in Questwealth. Questwealth portfolios include a predetermined basket of ETFs. You can get a portfolio with a total fee of only 0.37%, including Questwealth's 0.25% management fee plus the MER of the ETFs held in the portfolio of 0.12%. Like other robo-advisor options, Questwealth offers portfolio management, real-time balancing and access to agents that can answer your questions about your investments. They also include a mobile alternative so you can quickly check your investments.

Best TFSA Accounts Interest Rates in Canada

Who has the best TFSA rates in Canada? That depends, as rates change often. It’s worth checking out several investment options before investing to ensure you get the best rates. Interest rates can vary widely with TFSA accounts. While high-interest rates are definitely appealing, you will also have to consider minimum balances and additional fees in deciding if that high-interest rate is worth it.

These accounts do not require a minimum term and essentially act as high-interest savings accounts for your TFSA. Many financial institutions will offer an initial promotional rate that can earn you higher interest rates for several months or provide a cash bonus with your initial investment.

Here is a sampling of some of the best TFSA current account interest rates in Canada:

  • EQ Bank – 1.25%
  • Canadian Tire – 1.25%
  • Manulife – 1.50%
  • Mostusbank – 2.25% (promotional rate)
  • Tangerine – 2.25% (promotional rate)

*The above rates are as of March 2022

The Bottom Line

What is the best TFSA account? That depends on why you are saving, how long you plan to keep your money in a TFSA and your investments skills and interest. The TFSA is a flexible and effective financial tool for saving, so it’s not surprising that they are growing in popularity. Get the most out of the tax savings available through a TFSA by using it for your higher-earning savings.

Robo-advisors are a relatively inexpensive choice for first-time investors and anyone who lacks the time or interest to manage their own investments. Their ETF offerings can deliver diversification and the risk level you are willing to tolerate. And finally, remember, you do not lose contribution room when you withdraw, so you can continually take advantage of the TFSA to grow your savings and help you pay for the things you need or simply want.

Frequently Asked Questions

Each December, the Government of Canada announces the TFSA limit for the coming year. In 2021 and 2022, this limit is $6000. This limit has remained unchanged since 2019. These contribution limits are cumulative. So if you have not contributed your total allowable amount each year or made withdrawals, your limit will be much higher. For example, if you were born in 1991 and do not currently have funds invested in a TFSA, you could contribute up to $81,500.

There is no minimum investment required for TFSA accounts in Canada, at least as far as the government is concerned. However, some financial institutions require a minimum balance or a minimum initial investment. If you can afford a significant investment in a TFSA, you can qualify for reduced fees with some institutions, including Questrade and Wealthsimple. Higher investments can also earn you additional perks, including bonus cash.

TFSAs and Registered Retirement Savings Plans (RRSP), serve very different purposes. RRSPs defer taxes. When you invest in an RRSP you get a tax benefit immediately, and then when you withdraw the money, you pay taxes on it. The idea is that you put the money into an RRSP when you have a higher income, and withdraw it when you retire or your income is lower. However, sometimes you need the money sooner. And this is where a TFSA has a tremendous advantage. You do not receive a tax write-off for your investment, but you can take the money out whenever you need it, and any investment income you earn while your money is in the TFSA is also tax-free. TFSAs are a far more effective tool in that regard for both short and long term savings for any purpose.

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