High-Interest Savings Accounts for TFSA’s
One of the “safer” investment options for those new to TFSAs is a high-interest savings account (HISA). Unlike a regular savings account where you earn only 0.1-0.2% per year, in a HISA you can earn up to 3% in interest per year:
|Bank or credit union||Rate of return on a HISA TFSA|
|Big banks (RBC, TD, BMO, etc)||up to 1.25%*|
|Smaller banks and credit unions||up to 3%*|
*As of 2018, these will depend on your balance, special promotions, etc. Rates fluctuate often, especially as the Bank of Canada continues to raise interest rates.
Tangerine (formally ING Direct) offers this type of account where you can earn 1% per year. While this is not a lot compared to the HISAs at other banks and credit unions, you don’t have to carry a minimum balance and there are no fees or service charges. So if you don’t have a lot of cash to put into a HISA TFSA, this may be a good option for you.
With the bigger banks you can get a rate of return up to 1.05%. But for most banks the higher rates only kick in if you have a balance of at least $5000. RBC and BMO are the exceptions…you will earn 1.05% even if you only have $1 in the account. Make sure to check for service charges and transaction fees: some banks charge these if you are below a certain threshold (usually $5000); with other banks these may be in effect regardless of how much you have sitting in the account. If you do lots of transactions these fees could eat into your rates of return and negate any profits you might otherwise make.
Credit unions and smaller banks
Currently the best rates are found at a number of smaller banks and credit unions in Winnipeg, Edmonton, and Vancouver. The rate of return varies from 0.9-2% depending on your balance: the higher your balance, the higher your rate of return. Once again, there may be service charges and transaction fees; check the fine print to make sure you won’t actually be losing money if you are prone to moving money around a lot.
What to look out for
As long as you live outside Quebec, you can open a HISA TFSA with pretty much any financial institute online. If you are going with a smaller bank or credit union, it’s a good idea to make sure your money is insured. In Canada most banks are insured by the Canadian Direct Insurance Corporation (CDIC), although some credit unions are covered by their respective province’s Deposit Guarantee Corporation. If your bank or credit union is insured by one of these, your first $100,000 is automatically covered in case the bank goes under.
Some financial institutions may require written notification if you want to withdraw the money, so take this into account if the point of your TFSA is to have ready money in case of a time-sensitive emergency.