Are you interested in putting money into your Tax-Free Savings Account (TFSA)? The 2024 limit is $7,000.

What if you’ve never invested in a TFSA before? In that case, you’ll have contribution room of $95,000 if you were at least 18 years old and a Canadian resident in 2009.

If you’ve ignored the TFSA up until now, don’t worry because you’re not alone. Many Canadians give it a pass because they think it’s just meant for savings. They also tend to believe that they can’t get a good return with it and that it can only be used for high-interest savings or a GIC.

Why investing with a TFSA (not just saving) makes good sense for you

They really should have called the TFSA the Tax Free Investing Account (and then it would be the TFIA — but you get the idea) when it came out ten years ago.

Like their older sibling, the Registered Retirement Savings Plan (RRSP), TFSAs are a particular type of investment account in which you can hold a wide variety of investments. Although contributions are not tax deductible, like an RRSP, your investment growth and withdrawals within a TSFA are tax-free.

You can have a savings account, mutual fund, stock, bond, or many other types of investments in a TFSA. If you want to go with a low-risk portfolio using your TFSA, you can do that. You can hold the same investments as an RRSP.

The Flexibility of TFSAs Are Often Misunderstood

There is a common misunderstanding, perhaps by the name itself, Tax-free SAVINGs Accounts, that this is a plan designed solely for savings, or a plan that can just hold savings account investments, such as bank accounts or GICs.  This is far from the truth.  A TSFA can hold many of the same investment vehicles as an RRSP or a regular investment account.  This includes, Mutual Funds, Segregated Funds, ETFs, stocks, etc.  TSFAs can be used for any purpose, short or long term, where interest or other gains on the account accumulate and can be withdrawn tax-free.  This makes it a flexible plan for virtually any use one may have, from actual savings, to a long-term retirement vehicle.

Time to top up your TFSA investing account?

While many people want to invest for the long-term by contributing to their RRSPs (a great idea to build up that nest egg), you may be planning for some short-to-medium term purchases, in which case the TFSA may be the better option. Compare TFSAs vs RRSPs vs both, what’s best for me?