Keeping your hard-earned money in a bank account is easy – and it’s perfect for safekeeping. But what if there was a way to not only safely store your money, but also generate even more cash?
That’s exactly what a tax-free savings account is designed to do. Available to all Canadian residents, a tax-free savings account helps you make more money with interest, without being taxed on your earnings.
While tax-free savings accounts are readily available, not everyone takes advantage of them. A tax-free savings account, or TFSA, is the perfect way to increase your savings without any extra effort.
Here are just a few reasons why opening a tax-free savings account is a great idea.
A Tax-Free Savings Account Can Help You Save for Any Goal
Like a regular savings account, a tax-free savings account allows you to put aside money for absolutely any goal. Whether you’re saving to buy a home, a car, another big purchase, or simply a rainy day, a TFSA places no restrictions on your money.
You can use the cash you save at any time, for any reason. There are zero contingencies or strings attached to the money you put away in a TFSA.
You Can Invest Up to $6,000 – Or More
No matter your savings goals, it’s a smart idea to put away as much money as you can in any circumstance. And fortunately, a tax-free savings account allows you to do exactly that.
There is a cap on the amount you’re able to store in a TFSA, but that amount renews each year. Canadian residents can each place up to $6,000 in a tax-free savings account annually¹.
And if you don’t save $6,000 in a given year, the amount you haven’t contributed rolls over from year to year. For example, Investopedia² explains that if you add just $3,000 to your TFSA this year, you’ll be able to contribute the full $6,000 next year as well as the additional $3,000 you have left over from today. Fall below the maximum for a few years, and you’ll be able to save even more in your TFSA.
This means that you could maximize your tax-free savings even if you aren’t able to meet a $6,000 per year savings goal. A TFSA gives you the flexibility to contribute as much as you’re able to, while still maximizing the full benefits of this account in the future.
You Can Earn Great Interest
In addition to setting aside your money for safekeeping, placing your cash in a tax-free savings account means you’ll reap the benefits of interest.
Every tax-free savings account earns interest, meaning your cash increases while it’s saved. And these interest rates are definitely worth paying attention to. A TFSA with a high interest rate can net you hundreds of additional dollars every year, increasing your savings.
And right now, savings rates are strong. RateHub³ reports current interest rates start at 1.50 percent and go as high as 2.85 percent. That means you can earn nearly 3 percent in interest on your money.
You Won’t Be Taxed On Your Earnings
One of the biggest perks of a tax-free savings account is right in its name: no tax.
When you open a TFSA, your savings won’t be subjected to any kinds of taxes. When you place your money in the account, it can earn interest and increase your funds without any kind of tax penalty. All earned income from your investment in a TFSA is tax exempt, Investopedia reports⁴.
This means that if you place the full $6,000 yearly maximum into a tax-free savings account and earn $420 in interest, you’ll be able to withdraw the full $6,420 whenever you’re ready. Why shouldn’t you get the chance to use the money you’ve earned, right down to the last cent?
You Can Open a Tax-Free Savings Account Today
A tax-free savings account is a great benefit available for all Candian residents. These unique accounts offer you the opportunity to put your money to work for you – and you won’t have to pay taxes on your earnings.
If you’re ready to open a TFSA of your own, you can do so in just a few minutes. But before you open an account, make sure you do your homework.
Search online and look for banks that offer tax-free savings accounts. Search for the current interest rate, and see if any other banks are offering a higher percentage. Make sure to compare offers and options so you can choose the right tax-free savings account for your money.