Odds are you've heard of a TFSA before, whether it was brought up to you at your bank, you read it on a billboard, or from your uncle who just keeps pestering you to open one. But alot of Canadians still don't fully know what it is.
As it is a question I get quite a bit, I wanted to provide a bit of insight into the world of TFSAs (Tax Free Savings Account), and help demystify them a bit.
A TFSA is a tax-free investment account that you can use for both long-term (retirement) or short-term savings goals. Unlike a tradtional Savings Account from a bank that earns barely any interest, a TFSA is an account that can hold various investments from ETFs to mutual funds to individual stocks, among may other instruments. One thing that I'd like to clarify is that a TFSA in itself doesn't earn interest. You may see at an ad at a bank saying to open a TFSA and earn X percent in interest. What the ad doesn't say, is that your money is actually likely invested in a GIC within the TFSA (if you want more informaton on this just let me know). But the way to envision a TFSA is as a basket or a box. Your money is put into an investment (like a ETF or mutual fund), which is then held within the TFSA box.
TFSAs are exceptional tools to earn money completely tax-free, and as a result, they are excellent accounts to use for your retirement planning. If you want further information on how and why to utilize a TFSA for your retirement, please reach out.
For further information on what a TFSA is, its benefits, drawbacks, and intricacies, please click HERE to read a great summary article created by the team at Wealthsimple.
