Saving money has been so much easier over the years. Are you looking for a secure account where you can grow exponentially? Tax-free savings accounts may be the best option for you. They let Canadians earn investment income while having unrestricted access to their money. The best part is that you get your money tax-free!
Tax-Free Savings Account 101
A tax-free savings account (TFSA) is a kind of tax shelter available to Canadians. By having one, you are able to earn interest on multiple investments without paying any income tax – one of the advantages of a tax-free savings account. Various types of investments can be held as a TFSA, including your traditional savings account.
An important thing to remember about TFSA is they usually offer low-interest rates. Basic savings accounts, which have high-interest rates, deduct taxes from your money. This simply means TFSA is not for everyone. You have to determine first if you have a short-term or long-term savings goal.
TFSAs perfectly suit individuals who have long-term savings goals due to the contribution limits and tax implications. Canadians aged 18 years or older are eligible to apply for a TFSA.
Different Kinds of Savings Accounts
Finding the best tax-free savings account in Canada is very easy. However, if you think it’s not a good option for you, other kinds of savings accounts are available out there. They are structured differently to fit the customer’s specific needs.
Senior savings accounts
Catering to Canadians aged 60 years and older, senior savings accounts give customers lower transactions fees compared to others. They also provide different perks specifically for senior members.
High-interest savings accounts
Are you planning to achieve short-term savings goals? High-interest savings accounts may be the best for you. You only have to pay income tax on interest, but you earn much higher compared to having a TFSA.
The way this works is quite simple. The bank pays you interest on the funds you leave in that account. They later loan that money to other customers with a slightly higher interest rate. A portion of that rate is then used to pay you for your savings account.
Youth savings accounts
A majority of credit unions and banks often have special savings accounts just for young kids. Most parents choose this kind of account to teach their kids about saving money at an early age. It’s an effective learning tool because young individuals are taught how to budget and plan for their future. Typically, this type of children savings account comes with freebies and other perks young customers will enjoy.
Finding the Right Tax-Free Savings Account for You
A lot of different factors come into play when you are looking for an ideal tax-free savings account. First, you have to consider the account’s interest rate. Most customers are offered “teaser” rates, which are higher at the beginning. However, it’s also possible that your money will earn more interest in a TFSA that has a high daily interest rate.
Another aspect to consider is the transaction fees or monthly fee charged to the account. Can you transfer money to and from your regular checking account? If not, you may need to find a better TFSA. The best tax-free savings accounts in Canada usually offer reasonable fees, so you have to look for one that won’t break your wallet each transaction you make.
Getting the Most Out of Your Money Through TFSA
Almost half of Canadians now have their own TFSA. While this is generally good news, many of them are still under-utilizing the account. Most Canadians don’t realize that they can actually achieve much more just by having the proper knowledge of how TFSAs work. Other than saving money with a TFSA, you can still get more out of your account. Several people with a TFSA also say they have no solid plans for the money they have on the account.
Now, the question is: How do you use your TFSA to its full advantage?
Make sure to contribute regularly
Contributing to your TFSA regularly is much easier instead of paying one lump sum of the required annual TFSA contribution. You can even set up an automatic regular savings plan that coincides with your pay schedule. That way, saving will be much easier and faster. It also saves you time and effort because your bank basically does the work for you.
Coordinate with an advisor
TFSAs are mostly catered to customers with a long-term savings goal. An advisor can assist you with finding the right savings plan that works best for your short- and long-term plans. They are also willing to help you identify great opportunities to further build your savings while reducing your debt.
Track your daily spending
You will not be able to establish any savings account if you can’t handle your finances properly. Being able to manage cash flow is a vital aspect of ensuring you have money to support your savings. Most banks are now offering user-friendly apps that allow you to keep track of spending.
Are you still unsure of which savings account best suits your needs? At CompareMyRates, we help Canadian families make the most of their money in just a few clicks. We can also assist you in finding the best tax-free savings account in Canada that matches your savings goals.