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5 Ways to Invest In Your TFSA Account in 2022

Since its inception in 2009, the Tax-Free Savings Account (TFSA) has increasingly grown in popularity as more and more Canadians embrace it – over 69% of Canadian households contributed to the TFSA during the 2018 tax year.

A TFSA is a registered account you can use to save/invest funds while shielding your investment returns (dividends, interest, and capital gains) from taxes for life.

Every year, the government announces the contribution limit ($6,000 for 2022 and $6,500 for 2022), and unused contribution room can be carried forward indefinitely.

If you have been eligible to contribute to a TFSA since 2009, your accumulated contribution room is $81,500 in 2022 and $88,000 in 2023.

The TFSA is versatile and can be designed to meet various specific goals, including retirement savings, a down payment for a house, debt repayment, an emergency fund, etc.

So what are some of the investment assets you can put in your TFSA?

Best TFSA Investment Options in Canada

There are several options for investing or saving within your TFSA account.

Please note that the five options below are examples only and do not represent financial advice or a call to specifically use any of these options for your TFSA.

1. Cash

This is as simple and conservative as you can get – apart from keeping money under your couch. 😉

You can keep your cash in a savings account and earn interest on it like you would for any other savings account. There are “high-interest” savings accounts specifically designed for TFSAs, such as:

  • EQ Bank TFSA: Earn a standard 2.50%* rate on your Tax-Free Savings Account. It also offers TFSA GICs – learn more in this review.
  • Tangerine Bank TFSA – 1.00%
  • Simplii Financial TFSA – 0.40%
  • CIBC TFSA Tax Advantage Savings Account – 0.75%
  • TD High-Interest TFSA – 0.75%

The decision to put TFSA funds in a high-interest account may be due to a short investment horizon, low-risk tolerance, etc.

If you want access your funds at short notice or for unexpected expenses (i.e. emergency fund), cash in a savings account is one option for you – another is the use of GICs.

Savings account and GIC rates are so low these days, but they are pretty safe if you can’t afford to lose any portion of your capital.

Related: Best TFSA Savings Accounts in Canada

2. Guaranteed Income Certificates (GIC)

Also referred to as Term Deposits, Guaranteed Investment Certificates (GICs) are another option for those who want their TFSA investment in low-risk to risk-free investments.

A GIC will pay you a fixed interest rate on the principal invested, and your principal investment is 100% protected. There are so many types of GICs – generally, GICs of varying terms will attract different interest rates.

Term lengths can range from a few months to several years, and your funds are locked in for that time.

For example, EQ Bank’s Tax-Free Guaranteed Investment Certificates have the following interest rates (as of December 2022):

  • 3 months: 2.65%
  • 6 months: 3.50%
  • 9 months: 3.75%
  • 1 year: 5.10%
  • 2 years: 5.10%
  • 3 years: 5.10%
  • 4 years: 5.00%
  • 5 years: 5.00%

You can purchase GICs through your bank, credit union, and other financial institutions.

Related: The Top GIC Rates in Canada

tax free savings account canada - TFSA

3. ETFs and Index Funds

Exchange-Traded Funds (ETFs) are unlike traditional mutual/index funds in that they are traded like a stock on an Exchange, and their prices change throughout the day. Their fees are also generally lower than for index/mutual funds.

ETFs are a great investment option for a self-directed TFSA account. Watch out for the fees/commissions you may incur when buying or selling ETFs through your brokerage account.

Wealthsimple Trade offers no-commission ($0 fee) stock and ETF trading in Canada. Join here to get a $25 sign-up bonus. You can also learn more in this Wealthsimple Trade review.

Questrade offers up to $50 in free stocks or ETF trades when you sign up and fund your account with at least $1,000. ETF purchases are free on the platform, and you pay low competitive fees for stocks and ETF sales. Here’s a detailed overview of the platform.

ETF’s market share keeps growing in Canada, and assets under management are expected to reach $400 billion by 2023.

One downside to using ETFs/index funds is that you may need to rebalance your portfolio at least once a year – some investors may find this cumbersome. That said, you could also buy all-in-one ETFs that take care of this automatically.

An alternative to investing in ETFs using a self-directed brokerage account is to use the services of a robo-advisor.

Robo-advisors allow you to invest in low-cost ETFs without having to worry about re-balancing your portfolio or anything at all, and they charge a much lower fee than your mutual fund manager.

I have reviewed all the major robo-advisors in Canada, and my top pick is Wealthsimple Invest. When you sign-up with the company using this promo link, you receive a $25 cash bonus.

Index funds are similar to mutual funds in that they are a basket of stocks, bonds, commodities, etc. However, unlike mutual funds, index funds are designed to represent an index or a broad section of the “market”, hoping to generate the returns experienced in that “section” of the market.

For example, an index fund that tracks the S&P 500 will hold stocks that represent the composition of the S&P 500, and investors who hold that index fund are theoretically hoping to replicate the S&P’s annual return (i.e. market return).

Index funds generally have lower fees than traditional mutual funds because fund management is more passive than active, leading to lower operational/admin costs. A sample portfolio’s asset allocation using TD e-Series Funds could look like this:

  • TD Cdn Index-e: 26%
  • TD U.S. Index-e: 28%
  • TD Cdn Bond Index-e: 20%
  • TD Int’l Index-e: 26%

You can read more about sample index portfolios for Canadian investors or learn about investing in ETFs.

4. Individual Stocks and Bonds

You can buy and hold individual stocks and bonds (government and corporate) in your TFSA account. This approach comes with its own challenges, as you should always consider diversification with your investing strategy to lower risk.

Buying individual stocks and bonds can work out great as part of a wider portfolio asset allocation.

If you buy U.S. dividend-paying stocks in your TFSA, you will be subject to a 15% withholding tax. This is, however, not the case with Canadian dividend stocks.

Easily purchase stocks on Wealthsimple Trade and stocks and bonds on Questrade.

5. Mutual Funds

Mutual funds generally refer to collections of investment assets, such as stocks, bonds, etc., that are actively managed by a professional manager or investment company.

Mutual funds are an easy way to build a diversified portfolio without having a great deal of investment knowledge. Mutual funds come with fees, including MER and other admin fees.

Want to minimize your investment fees? Check out this article on Investment Fees in Canada.

There are thousands of mutual fund options, and you can easily approach your bank to open a mutual funds TFSA account. These funds are generally structured to cater to different investing styles and risk tolerances.

Conclusion

TFSAs are very flexible, and this is one reason why they are very popular. You can make withdrawals from your account and are allowed to re-contribute any withdrawal amounts in the following year. 

Don’t forget that there’s a blacklist of investments (non-qualified or prohibited) that you should avoid in your TFSA.

As with any other investment strategy, you should decide on how you invest your TFSA after carefully examining your financial goals, investment time horizon, risk tolerance, investment knowledge, fees, and portfolio size.

Related:

5 Ways to Invest In Your TFSA Account in 2022

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Author

Gravatar for Enoch Omololu, MSc (Econ)
Enoch Omololu, MSc (Econ)

Enoch Omololu is a personal finance expert and a veterinarian. He has a master’s degree in Finance and Investment Management from the University of Aberdeen Business School (Scotland) and has completed several courses and certificates in finance, including the Canadian Securities Course. He also has an MSc. in Agricultural Economics from the University of Manitoba and a Doctor of Veterinary Medicine degree from the University of Ibadan. Enoch is passionate about helping others win with their finances and has been writing about money matters for over a decade. He has been featured or quoted in The Globe and Mail, Winnipeg Free Press, Wealthsimple, CBC News, Financial Post, Toronto Star, CTV News, Canadian Securities Exchange, Credit Canada, National Post, and many other personal finance publications. You can learn more about him on the About Page.

His top investment tools include Wealthsimple and Questrade. He earns cash back on purchases using KOHO, monitors his credit score for free using Borrowell, and earns interest on savings through EQ Bank.

15 thoughts on “5 Ways to Invest In Your TFSA Account in 2022”

  1. Gravatar for Miguel (The Rich Miser)

    Hey Enoch,

    Wow, this sounds like an amazing account; I wish we had it in the US! That “unused contribution room can be carried forward indefinitely” is just an incredible benefit.

    As far as I know, outside of special-purpose accounts (retirement, college savings) we have nothing like this down here.

    Cheers,
    Miguel

    • Gravatar for Enoch Omololu

      @Miguel: I have heard that the TFSA is very similar to the Roth IRA, but don’t know for sure. Yes, the TFSA is awesome when you think of the many tax benefits possible.

  2. Gravatar for caroline

    I love TFSAs:)
    My TFSA is an integral part of my withdrawal strategy when I retire to reduce my taxable income!

    • Gravatar for Enoch Omololu

      @Caroline: Good plan – why pay the government more than you need to when you have TFSA contribution room to use!

      • Gravatar for TOONNA

        Hallo Enoch,

        Thanks for the thorough blog posts, great content as usual. Can you please expand on Caroline’s comment a bit more, or, if you have already written about it elsewhere on your site, can you send a link to it? I would love to learn how to use the TFSA room as a retirement strategy, thank you.

        Also, although you refer to credit unions as a good place to purchase TFSAs and GICs, you don’t give any specific examples, perhaps because there are so many out there? For anyone interested, I recommend checking out Hubert Financial based in Manitoba. They have some of the highest interest rates in the country on their TFSAs and there GICs, and lots of positive reviews online, especially regarding prompt customer service. Their rates can be seen here: https://www.happysavings.ca/rates/.

        Thanks again.

  3. Gravatar for GYM

    I love my TFSA too. There are some people in Canada with million dollar TFSA’s, thanks to speculation and penny stocks. Hopefully, Canada doesn’t take it away- they have been very indecisive about the contribution amount per year (depending on the government in power).

    I think using the TFSA as a savings account is a poor strategy but that’s just my opinion haha 🙂

  4. Gravatar for The Curious Frugal

    As a part-time employee, most-time stay at home mom, I love the TFSA over an RRSP due to my income and the flexibility of the TFSA.

    • Gravatar for Enoch Omololu

      @Curious Frugal: This makes sense particularly if you’re not missing out on any employer-contribution match for a Group RRSP and if your tax bracket is not too high. You can always build up your RRSP contribution room and use it up in the future.

  5. Gravatar for Sheryll

    Hi Enoch, is TFSA affecting CPP or OAS in the retirement age?

    • Gravatar for Enoch Omololu

      @Sheryll: Hi. No, TFSA withdrawals do not affect your CPP or OAS payments or eligibility in retirement as the funds do not count towards your taxable income.

  6. Gravatar for Raymond Pelland

    Hi Enoch,
    I have a TFSA savings account and I’m interested in purchasing qualified investments too. If I purchase through an investment firm would I set up a separate TFSA account or is it possible to combine the savings and the investments into one? If so, how does one do that?

    • Gravatar for Enoch Omololu

      @Raymond: You can open multiple TFSA accounts at the same financial institution or at different banks. Investment assets are generally held separately depending on the type. For example, if you open a TFSA account to hold stocks, ETFs, or mutual funds, it is separate from your TFSA “savings or cash deposit” account, but both can be held at the same bank. The main thing to watch out for is that you must track your total contribution amount and ensure you don’t exceed your TFSA limit in order to avoid penalties.

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