Banking encompasses the business operations and services provided by financial institutions. These entities manage various financial transactions, including cash management and borrowing activities, among other functions.
Banks are profit-driven organizations owned by investors. Their primary objective is to generate profits for shareholders. Unlike credit unions, banks don’t grant membership status to customers, who lack decision-making power in bank policies.
Accessibility is broad with banks, as they don’t restrict eligibility based on specific demographics. Anyone residing within a bank’s serviceable area can open an account and become a customer.
Banks can be categorized into online-only operations and brick-and-mortar institutions. Online banks operate virtually with minimal or no physical branches. Despite lacking face-to-face services, they often offer competitive rates due to lower overhead costs.
To optimize the benefits of a bank account, it’s crucial to understand available options.
Savings Goal Calculator
Interested in maximizing your savings and investment earnings while minimizing taxes? Consider opening a Tax-Free Savings Account (TFSA). Since its introduction in Canada in 2009, the TFSA has been a popular choice for Canadians looking to grow their wealth tax-free.
Each year, the Canadian government sets a maximum annual contribution limit for TFSA holders aged 18 and older. These contribution limits accumulate over time, allowing you to make up for any unused contribution room in future years.
If you’re considering opening a TFSA this year, explore your options carefully. While your regular bank may offer a TFSA, it’s worth examining the various offers available to ensure you’re getting the best deal for your financial goals.
Established by Home Trust in 2013, Oaken Financial provides Tax-Free Savings Accounts (TFSAs) in the form of registered Guaranteed Investment Certificates (GICs). With interest rates ranging from 4.15% to 5.05%, depending on the selected term length, and requiring a minimum deposit of $1,000, Oaken offers a reliable option for risk-averse individuals.
One of the notable advantages of Oaken’s TFSA is its fee structure. There are no fees for GICs, and transferring the TFSA to another institution incurs no charges. This flexibility ensures that account holders can take advantage of more attractive offers elsewhere without penalties.
Here’s a summary of Oaken Financial’s TFSA offering:
EQ Bank, established by Equitable Bank in 2016, caters to Canadians seeking a straightforward online banking experience focused on savings accounts and Guaranteed Investment Certificates (GICs). Recently, EQ Bank expanded its services to include Tax-Free Savings Accounts (TFSAs) for existing EQ Bank Savings Plus Account holders. The TFSA Savings Account offers a competitive interest rate of 3.00%*, which is not a promotional rate but the regular interest rate.
As an online-only bank, EQ Bank does not operate physical branches, resulting in no monthly fees for account holders. Customers can open multiple regular high-interest savings accounts and one TFSA Savings Account per person. Transferring funds to an EQ Bank TFSA Savings Account is convenient through various methods such as linking a regular chequing account, one-time transfers, or setting up automatic transfers. Additionally, customers can use Interac e-Transfers® to fund their accounts.
An EQ Bank TFSA Savings Account is an attractive option for individuals aiming to maximize tax-free interest earnings while maintaining liquidity for immediate access to their assets.
Here’s a summary of EQ Bank’s TFSA Savings Account features:
Motive Financial, an online-only bank, leverages its low operating costs to offer competitive interest rates to its customers. It stands out for individuals seeking the flexibility of holding cash in their Tax-Free Savings Account (TFSA), as Motive Financial offers one of the highest interest rates in Canada for this account type, coupled with no fees for withdrawals.
Although Motive Financial is owned by Canadian Western Bank, based in Edmonton, customers cannot access services at Canadian Western Bank branches. All customer interactions are handled through email or phone correspondence.
Key features of Motive Financial TFSA:
BMO offers TFSA options for both cash deposits and holding investments, catering to varying preferences. While its TFSA interest rate is relatively low at 0.05%, individuals who prefer working with a major bank may find this acceptable.
Key features of BMO’s TFSA:
TFSA accounts can be opened online for basic (cash) TFSAs, while investment TFSA accounts can be opened online or at one of BMO’s 900+ branches across Canada.
Consider Wealthsimple for your TFSA if:
Wealthsimple allows you to select a prebuilt investment portfolio, periodically rebalanced by Wealthsimple to adapt to market changes. These portfolios match different risk tolerance levels, containing a mix of equity and fixed-income (bond) ETFs. Since your investment portfolio is held in a TFSA, all capital gains and dividends earned are untaxed.
Key features of Wealthsimple TFSA:
If you’re experienced in investing and prefer managing your own securities, consider using an online broker like Questrade to hold stocks, ETFs, mutual funds, bonds, and other investments within your TFSA.
Key features of Questrade TFSA:
The selection of TFSAs showcased on this page reflects a diverse range of strengths and weaknesses, catering to different types of savers with varying priorities. Some excel in offering high interest rates coupled with low or no fees, while others provide support for various account types or boast user-friendly accessibility across the country. Recognizing that comfort levels with online banking and investing differ, we deliberately included a mix of smaller, digital financial institutions and investment firms alongside more established brick-and-mortar banks.
Although some issuers may be less familiar to you, their offerings may align better with your preferences. The evolving financial landscape in Canada has fostered increased competition, with several new organizations surpassing the Big 5 banks with their innovative products and services.
Keep an eye out for the below account variations when choosing a TFSA. Which of these features are most important to you, and which are you more willing to compromise on?
TFSA interest rates vary among account issuers, with digital banks typically offering higher rates compared to traditional Big 5 banks. Given the current inflation rate in Canada, hovering around 2%, it’s advisable to aim for a TFSA that offers interest or returns equal to or exceeding this rate. While Big 5 TFSA rates tend to be lower, robo-advisor and online broker TFSAs operate differently, as they don’t guarantee interest rates. Instead, the value of securities within these investment TFSAs fluctuates with the market. However, over a span of at least 10 years, these investment TFSAs generally outperform regular TFSA interest rates, offering potential for higher returns.
While some issuers may tempt you with special interest rates for a limited time, it’s essential to remain cautious. These promotional rates can give your savings a boost initially, but don’t be swayed solely by a TFSA offering a large promotional interest rate with a significantly lower regular rate. Remember, the promotion is temporary, and it’s the regular rate that matters over the long term.
While monthly or annual account fees are rare for TFSAs, it’s essential to be aware of potential fees associated with other transactions. These fees may include charges for transferring a TFSA to another financial institution or extended periods of inactivity on the account. For online broker TFSAs, fees typically apply each time you buy or sell a security. Similarly, robo-advisors may charge management fees for overseeing your portfolio, as well as Management Expense Ratios (MERs) for the ETFs held within the portfolio.
Some TFSA issuers may require an initial minimum deposit amount, though this will likely be quite low.
TFSAs can technically hold a variety of funds, including cash, GICs, mutual funds, stocks, bonds, and exchange-traded funds (ETFs). However, some organizations may offer TFSA accounts tailored to specific types of funds, such as only cash or only a GIC. It’s essential to review the offerings of each institution to ensure they align with your investment preferences and financial goals.
While the likelihood of your TFSA’s issuer going bankrupt is low, it’s essential to prioritize safety. Ensure that the issuer’s TFSA is eligible for insurance with reputable entities such as the Canada Deposit Insurance Corporation (CDIC), the Canadian Investor Protection Fund (CIPF), or a provincial deposit insurer. This added layer of protection provides peace of mind and safeguards your investments in case of unforeseen circumstances.
Canadian financial institutions vary in their reach and availability across provinces and territories. While the Big 5 banks have a widespread presence, other institutions may offer products and services in a limited number of regions, operate only in major cities, or function solely online without physical branches. Your preference for online or in-person service, as well as your province or territory of residence, may influence your choice of TFSA. It’s essential to consider these factors when selecting the right TFSA provider for your needs.
Tax-free savings through a TFSA is an appealing option for many, but it’s essential to consider other savings vehicles depending on your financial goals and circumstances.
For example, if your priority is saving for your child’s college education, maximizing contributions to a Registered Education Savings Plan (RESP) may be more beneficial due to the Canadian Education Savings Grant’s contribution matching program.
Similarly, if you have significant debt, focusing on debt repayment before contributing to a TFSA is advisable, as the interest on the debt likely exceeds the interest earned in a TFSA. Remember, you can always catch up on TFSA contributions later once you’re debt-free and have utilized other relevant accounts.
To gauge the potential growth of your tax-free savings over time, utilize our savings calculator below. You can input interest rates from TFSA options listed on this page to visualize your savings’ growth or set a savings goal to determine the required regular contributions. Explore our savings calculator to better understand its functionality and optimize your financial planning.
Are you planning a sabbatical or saving for a down payment on a house? Wondering what it will take to reach your financial goal? Our calculator can help you find out. Simply input your savings plan, and visualize your financial results with clear, graphical representations. Click the report button to access more detailed information about your plan and discover steps you can take to ensure it stays on track. Start planning for your future today with our intuitive savings calculator.
The amount you wish to have in savings at the end of this savings plan.
The number of years you have to save.
Total you currently have saved toward this savings goal.
The amount you will contribute each month to your savings. This calculator also assumes that you make your contribution at the beginning of each month.
This is the annually compounded rate of return you expect from your savings or investment. The actual rate of return is largely dependent on the type of investments you select. For example, the total return including dividends of the S&P/TSX Composite Index for the 10 year period from December 31, 2012 through December 31, 2022 was 7.6% (source spindices.com). Savings accounts at a bank or credit union may pay as little as 2% or less. It is important to remember that future rates of return can’t be predicted with certainty and that investments that pay higher rates of return are subject to higher risk and volatility. The actual rate of return on investments can vary widely over time, especially for long-term investments. This includes the potential loss of principal on your investment.
What you expect for the average long-term inflation rate.
Advantages:
The cons you’ve listed about traditional savings accounts are actually for Registered Retirement Savings Plans (RRSPs). Here’s a concise breakdown of the drawbacks of RRSPs:
Tax on withdrawal: While contributions grow tax-deferred, you’ll pay taxes on the money you withdraw in retirement, which could be at a higher tax bracket than your current one.
Limited contribution room: The Canadian government limits how much you can contribute to your RRSP each year. This amount is based on your income.
Income test for benefits: Large RRSP withdrawals can affect your eligibility for income-tested government benefits.
Let me know if you’d like to explore these in more detail or if you have any questions about RRSPs.
The content provided on Myfinancesguru.com is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.
