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High Interest Tax Free Savings Accounts (TFSA)


ING Direct now offers the highest interest Tax Free Saving Account (TFSA) in Canada at 3.0%.  Not only is it free, they are offering a $25 bonus directly into your account when you use an “orange key” code Note that the bonus requires a minimum deposit of $100 with the initial registration cheque.

Get the latest Orange Key Referral Code

As I mentioned in my upcoming TFSA article before the new year, most big banks and smaller online banks are offering high interest tax free savings accounts.  Now that the TFSA is here, below is a list of banks that are offering it as a high interest account.  This is the perfect solution for using the TFSA as an emergency fund.

Here are the offerings along with the current interest rate.  For those of you looking for a refresher course, here’s how the tax free savings account (TFSA) works.

From the list, it seems that most of the major players have created a tax free savings account.  That is except Scotia Bank.  Perhaps their TFSA products are in branch only?

As the name of the account states, it’s a tax free account.  This means that all the interest in the account can accumulate tax free.  Not only that, you can withdraw from the account at any time without any penalties.  In addition to being a simple savings account, the TSFA can be a trading account or even a viable alternative to the RRSP Home Buyers Plan.

Have you opened your TFSA yet?  If so, who did you open it with?

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FrugalTrader About the author: FrugalTrader is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 83 comments… add one }

  • john January 16, 2009, 3:23 pm

    The US dividends would have a 15% withholding tax charged on them that would be unrecoverable. I don’t think there would be Canadian tax though. Anyone have anymore info?

  • DK January 16, 2009, 4:51 pm

    FT,

    I believe Chris and John are right although I have not found a source that says so explicitly.

    Foreign sourced dividends (i.e. dividends from U.S. corporations) are taxed not by Canada, but by the foreign country. The broker simply withholds a portion of the dividend and remits it to the source country. The reason they don’t get taxed in a RRSP is because the tax treaties with the source countries exempt certain types of retirement or pension plans, such as RRSPs, 401k, Roth, etc. from some of the tax obligations.

    To my knowledge a TFSA is not strictly speaking a “retirement” plan – although it can be used for retirement it is really more of an all-purpose savings plan. Therefore my belief is that the treaty exemptions for retirement plans would not apply.

  • Sampson January 16, 2009, 8:39 pm

    I have also read that US dividends within the TFSA will be subject to the withholding tax, however, that tax rate is still better than 100% taxable at marginal rates.

  • Aolis January 17, 2009, 5:47 pm

    TD e-Series Index mutual funds have some of the lowest rates in Canada. For example, the Canadian Index is 0.31%. I opened a TD TFSA Mutual Fund account.

  • kumar January 18, 2009, 5:15 pm

    I haven’t opened my TFSA account yet.
    Here is another link to TFSA product comparison on Savings, GIC and Brokerage acconts.
    http://www.redflagdeals.com/deals/main.php/articles/tfsa_tax_free_savings_accounts_comparison/

  • kumar January 18, 2009, 5:18 pm

    Waiting for better GIC rates to open a TFSA

  • lauren January 18, 2009, 9:53 pm

    go to bmo.

  • Stephen Winters January 18, 2009, 11:18 pm

    Surprised to see that nobody mentioned E*Trade. Is E*Trade not as popular anymore?

    • FrugalTrader FrugalTrader January 19, 2009, 9:14 am

      Stephen, does etrade have a high interest TFSA in addition to their trading account?

  • Nguyen Nguyen January 19, 2009, 1:22 am

    I opened one with PC Financial. It was painless. The only pain is having money to put into the account! Spent it all on tuition. Starting from 0 again! :P

  • Mark January 21, 2009, 5:06 pm

    I have been calling around to the banks today and Scotiabank’s current rate is 2.6%.

  • Buck January 21, 2009, 5:43 pm
  • DAvid January 21, 2009, 9:39 pm

    Opened my TFSA today. RBC has a sale on 2 year non-redeemable GIC at 3.25%. Seemed more of a sure thing than Manulife, given their recent decisions on the M1 interest rate, and far better than the RBC high interest savings account at 2.5%.

    DAvid

  • newbie January 22, 2009, 11:40 am

    BMO has a 2 year GIC at 3.50%.

  • Leu January 25, 2009, 9:15 pm

    Regarding fees for tese accounts, what you have to watch out for is the fee for moving the account to another financial instiution. Many of them are charging $100 for this privilege, just like they do with RRSPs.
    I think I’ll go with ING, where I can be sure of no hidden costs.
    Ellen Roseman had a column in the Toronto Star yesterday which is probably online and is instructrive, or at least raises questions. Apparently these are subject to some kind of inheritance tax in Ontario because Ontario has not yet passed enabling legislation. I didn’t understand her calculation. Did anyone?

  • Leu January 25, 2009, 9:23 pm

    Also, what ahppens if you simply close down the account because you don’t have the money? Is there going to be a significant minimum monthly balance type of thing required to stop tehm taking whatever you have left? I don’t know the answers, but worth reading the fine print, and remember that they can always change their rules, usually to your disadvantage, as hapened with RRSP fees, which were very low at the beginning, or non-existent. They usually introduce them sometime when you’re in the middle of a 5year GIC, so you are stuck!

  • Carole January 27, 2009, 2:15 pm

    Avoid PCF…they dropped their rate twice in the first two weeks of Jan.
    Now one of the lowest.

  • D-Mac February 8, 2009, 5:52 pm

    Just happened upon the site and getting a lot of reading done! Quick question. I noticed the Smith Manoevre you are involved in. Can the money from the HELOC be put into a TFSA. Seems like a good deal… get the tax shelter from the TFSA but also the deductible interest because you are borrowing to invest?

    I hope it’s not a silly question.

  • DAvid February 8, 2009, 10:39 pm

    D-mac,
    See the discussion on this topic here.

    DAvid

  • Canadian Money Review February 12, 2009, 12:58 am

    I’ve just posted an update on my blog if you want to see the latest rates. (http://www.canadianmoneyblogs.com/2009/02/they-really-want-your-money-high.html)

    Manulife seems strangely high. Any idea why?

  • Wade February 13, 2009, 1:08 pm

    I opened TFSAs for my wife and I at E-Trade. I bought $5,000 (face value) of discounted Bell Aliant bonds paying 4.72% and maturing in Sept 2011. I’ll continue putting relatively short term bonds rated BBB or better, into these accounts each year, rolling the interest into new bonds each time I put more money in. If interest rates increase in a few years, I’ll start laddering out to longer terms.

    I think this is a great place to put interest income because I won’t be paying tax on it. I’ll keep capital gains and dividends primarily for my regular accounts.

    Wade

  • John Doe February 13, 2009, 10:28 pm

    What I’ve read about contribution limits in the responses to this post (other than Bob’s) doesn’t make a lot of sense…. the way I’ve understood this is that you can only inject a max of $5000 cash every year into any TFSA per year, and that accumulates annually. *Earnings* from a TFSA I can’t imagine are a factor towards this contribution limit. For example, if I strike it rich in a penny stock and my $5000 (after the first year) grows to a million, and I withdraw it as cash (not transfer to another TFSA). I can’t imagine that would mean I would have a million dollars+ in TFSA contribution space the following year. The example mentioned by “chococrazy” is perfectly fine as it deals with an amount below the max. contribution limit.

    Sample scenario as I understand it:
    Year 1: I put in $5000 in the TFSA
    Year 2: I put another in $5000 in the TFSA
    Year 3: I put another in $5000 in the TFSA. My total account (due to amazing investing) doubles to $30000, and I decide to withdraw it all as cash. I’m not allowed to reinject *any* cash into the TFSA as I’ve used up my space for this year, and all previous years.
    Year 4: I’m *allowed* to reinject a max of 4*$5000=$20000 into the TFSA this year, due to the withdrawal ( >= $20000 ) I made previously.

    Somebody please correct me if I’m wrong…

  • ed March 2, 2009, 6:30 pm

    what kind of tax do i have to pay on a TFSA inherited from a parent when they pass away?

  • DAvid March 2, 2009, 9:16 pm

    ed,
    See this link: http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/dth-eng.html or do a web search: “TFSA upon death”

    Basically the amount accrued until the date of death is transferred to the estate as a TFSA, but any income after that date becomes taxable to the estate (and therefore heirs).

    DAvid

  • FrugalTrader FrugalTrader March 2, 2009, 11:47 pm

    Thanks for the link DAvid.

  • Bev December 20, 2009, 9:54 pm

    ING Direct has dropped their rate to only 1.2%

  • RUSS January 7, 2010, 10:06 pm

    Bev,

    As of Jan 1, 2010 ING raised the TFSA rate back to 3%. It’s likely a marketing ploy to draw a bunch of deposits in early in the year and then they’ll start dropping the rate again, but it’s a good deal while it lasts!

    Cheers,
    Russ

  • Marcus May 1, 2010, 12:07 pm

    I checked my ING TFSA savings account yesterday (30 Apr), and they dropped it to 2%. Marketing ploys… tisk tisk.

  • FRANK August 6, 2010, 6:28 pm

    12. CHUCK

    I believe USD investments will be automatically converted to CDN upon withdrawl. Check that out.

  • David November 17, 2010, 11:39 pm

    The and of the year is close. Does anybody know who offers the best rates on TFSAs?

  • dream November 4, 2012, 12:44 am

    Hello,
    Great site. Just stumble this week.
    Only thing I am finding it difficult is there were no dates of blog postings so I am unable to correlate whether it is current or old

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