Tuesday 7 November 2017

Broke Student's Guide to TFSAs

The most frequent budgeting advice that any student receives from their parents, teachers, and counselors is to save, save, save!

Most people begin their savings journey with a simple savings account with their bank. If you have a savings account set up already, it might be time to take the next step and open up a TFSA.

What is a TFSA?

A TFSA or a Tax-Free Savings Account... "is a way for individuals who are 18 and older and who have a valid social insurance number to set money aside tax-free throughout their lifetime. Contributions to a TFSA are not deductible for income tax purposes. Any amount contributed as well as any income earned in the account (for example, investment income and capital gains) is generally tax-free, even when it is withdrawn."

Okay, that might be a lot of financial jargon to a lot of you, so let's break it down. Think of a TFSA as a sort-of savings account, when you put money into the TFSA, it slowly... very slowly... grows as you are paid interest on the amount you have within the account. You might be thinking that opening a TFSA might not be worth it if it's so slow, but wait! Remember that the money grows exponentially thanks to the awesome power of compound interest. Also, if you're going to put money into a savings account, why not move it all to a TFSA, instead of having it sit around gathering digital dust bunnies.

TFSA Basics

  • Must be 18 or older with a valid SIN card to open a TFSA.
  • You are NOT required to be employed to open a TFSA.
  • There is a contribution limit, meaning that you can only deposit a maximum amount into your TFSA every year. The contribution limit as of 2017 is $5,500.
  • Unused contribution room from previous years is rolled over to the next year. For example, if you deposit $3,000 in 2017, you would be able to deposit a maximum contribution of $8,000 in 2018.
  • Do NOT contribute more than your contribution limit for the year, if you do, the tax gods will punish you. AKA you will be heavily fined with interest by the CRA depending on the over-contribution amount every month until you remove or fix the over-contribution.
  • All money held in or withdrawn from a TFSA account is tax-free... forever.
  • You do NOT need to open a TFSA account with the bank you are currently with.

What TFSA to get?

The TFSA will have different features depending on the bank you open it with. Some banks will offer TFSAs that require a minimum to open, some will not allow you to withdraw money from a TFSA until a period of time has passed in return for a higher interest. Other TFSAs will allow withdrawals at any time, but for a lower interest. While having lots of options is great, it can also be overwhelming to find a TFSA that's best for you.

Tips for students to look for in a TFSA:
  • Find a TFSA that doesn't charge fees for transferring money out or into the TFSA.
  • Highest possible interest. The higher the interest the more money for your wallet.
  • Can you do online or mobile banking?
  • No monthly fees.
  • No minimum initial deposit.
  • As a student, I recommend getting a TFSA that doesn't require you to wait before being able to withdraw money back out. You don't want to put money in and then not be able to withdraw it when your suddenly faced with a huge school related bill.
  • Make sure there's no fine print stating that the interest will suddenly drop after six months. A lot of TFSAs give a short period of very high interest to lure in customers.

Compare TFSAs

An easy way to find a good TFSA is to use a site like RateSupermarket to compare the best available TFSAs you can open in your location.


The site has ordered the TFSAs from highest to lowest interest, making the search much easier for you. Clicking "More Details" will open up a brief overview of some of the features for that specific TFSA.


While the overview is handy for quickly comparing TFSAs, make sure to visit the website for all the details. This overview doesn't mention that there are fees for Interac eTransfers, you definitely don't want to jump into a TFSA without checking all the details!

Stop Delaying!

There's very little required of you to open up a TFSA. While researching different TFSAs might be a bit of a hassle, there's nothing better than opening up your account years down the road and seeing all the money you've been able to save up. Stop delaying and start saving, your future self will thank you.

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