The tax-free savings account (TFSA) is not strictly a savings account in the traditional sense. Your TFSA account can hold a variety of investment assets including cash (savings), GICs, stocks, bonds, ETFs, mutual funds, etc.
There are many reasons why you may choose to keep your TFSA funds in a savings account, for example, if you are saving for a vacation or down payment on a home. In these two scenarios, you want to avoid the ups and downs of the stock markets and protect your balance since you will need access to funds within a few months to years.
To get the most out of your TFSA when using a savings account, it’s in your best interest to park your funds in a ‘high-interest rate account’ that offers returns that at the very least is up to the inflation rate i.e. 2% or higher.
Some of the best rates available on tax-free savings accounts in Canada this year are:
- Tangerine: 2.80% introductory 5-month rate (with promo link)
- motusbank: 1.85%
- Motive Financial: 2.20%
- Implicitly Financial: 2.00%
- Alterna Bank: 1.90%
- Hubert Financial: 2.00%
You can also check out the best general high-interest savings accounts in Canada, here.
The Best High-Interest Rate TFSA Accounts in Canada
A comparison of TFSA savings accounts interest rates shows that the best rates are currently being offered by online-only banks and credit unions. The difference in rates between online banks vs. Big banks can be significant.
For example, as of January 2020, I can find TFSA savings rates as high as 2.40% (offered by online banks) compared to as low as 0.75% (offered by a Big 5 bank).
In addition to great rates, other perks to look for in a great TFSA savings account include:
- Zero monthly fees
- No minimum balance
- No restrictions on transactions including transfers and withdrawals
1. Tangerine TFSA Savings Account
Tangerine is the most popular online-only bank in Canada. They currently offer a TFSA introductory savings rate of 2.80% for new accounts when you sign up here (0.40% after the 5 months promo period ends).
Tangerine deposit accounts do not have a monthly fee and you get free access to an automatic savings plan, no minimum balances, and CDIC insurance up to $100,000. They also offer a chequing account that gives you free access to 3,500 ATMs in Canada and 44,000 worldwide.
You can read my Tangerine Bank Review here.
Sign up for a Tangerine TFSA Savings Account.
2. Motusbank TFSA Savings Account
motusbank is the online-only banking arm of Meridian Credit Union, one of the largest credit unions in Canada. Their TFSA savings account offers a high tax-free interest rate of 1.85%.
There is no monthly fee, no minimum balance requirement, unlimited transactions, no-fee access to over 3,700 ATM across Canada, and your deposits are insured by the Canada Deposit Insurance Corporation (CDIC) up to $100,000. You can read my complete motusbank review here.
Sign up for a motusbank TFSA Savings Account.
3. Motive Financial TFSA
Motive Financial is a division of the Canadian Western Bank which is a member of CDIC. The Motive Financial TFSA Savings Account offers a rate of 2.20% on your savings plus no minimum balance, free and unlimited transactions.
Read my complete Motive Financial Review here.
4. Implicitly Financial TFSA
Implicitly Financial is an online bank and is owned by Entegra Credit Union. Their TFSA Savings Account offers a 2.00% rate that grows tax-free and is 100% insured by the Deposit Guarantee Corporation of Manitoba.
It also has no monthly fees and you can conduct one free withdrawal per month. Additional withdrawals cost $1.
5. Hubert Financial TFSA
Hubert Financial is an online bank owned by Sunova Credit Union. Their TFSA Savings Account offers a 2.00% interest rate that is 100% guaranteed by the Deposit Guarantee Corporation of Manitoba.
The account has no monthly service fees and no minimum balance. Interest earned on your fund is calculated daily and paid out on a monthly basis.
6. Alterna Bank TFSA
Alterna Bank is a digital bank owned by Alterna Savings and Credit Union. Their TFSA eSavings Account offers a 1.90% rate. There are no minimum balance requirements, no fees, unlimited transactions, and your deposits are insured by CDIC.
Check out my Alterna Review here.
What is a TFSA?
The tax-free savings account was introduced by the Federal Government in 2009 and can be used to save and invest for various purposes, including for retirement.
The TFSA is popular because it gives Canadians an opportunity to invest and grow their wealth without having to pay taxes on the returns earned.
Each year, Canadians get an additional TFSA contribution limit that adds on to their existing contribution room. For 2020, the contribution limit was $6,000. if you have been eligible to contribute to a TFSA since its inception, your total contribution room as of 2020 is $69,500.
You can confirm how much room you have left by checking your CRA MyAccount or using one of the many TFSA calculators available online.
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Benefits of the Best TFSA Savings Accounts in Canada
Contrary to what the name suggests, a TFSA account can actually hold a variety of investments (similar to RRSPs) of which savings is just one.
Some of the benefits offered by a TFSA savings account include:
- You can easily withdraw funds and re-contribute them at a later date without losing the contribution room.
- The interest income earned on your account is not taxable.
- Income generated from a TFSA does not affect income-tested benefits such as the Old Age Security pension and GIS. So, if your TFSA income puts you in a higher tax bracket when you are retired, your pensions are not clawed back.
- Your unused TFSA contribution room carries over from year to year, so you can easily contribute whenever you have the funds.
While a savings account generally offers lower returns, you may choose to put your TFSA funds inside a TFSA savings account if you are saving towards a short-term goal, for your emergency funds, or if you need to protect your money against stock market/investment risks.