5 Best Investment Accounts In Canada 2024: Know Your Options

Are you looking to start investing but want to make sure you have a good understanding of the different types of accounts in Canada?

A lot of investors are confused about what an investment account type in Canada actually is. An account is a shell that houses various types of investment assets, whether it is cash, stocks, bonds, funds, or more. An institution or a bank can’t offer a “better” TFSA than a competitor.

One of the most versatile investment account types available to Canadians is the Tax-Free Savings Account (TFSA). As of the end of 2018, there were 20,779,510 Tax-Free Savings Accounts in Canada with a fair market value of $298 billion.

I will cover the best investment accounts in Canada below, outline some of their key features, and discuss when it may make sense to use one type of account over another.

Why Consider Different Account Types?

Account types are important to consider because they can significantly affect your after-tax returns.

As an individual investor, you should be much more concerned with the returns that you are getting from your investments on an after-tax basis as opposed to a before-tax basis. Your after-tax returns are what you get to keep after paying the government taxes on your investment returns.

Investment Return Taxation

Investment returns can be broken down into three main categories:

  1. Capital gains
  2. Dividends
  3. Interest income

Capital gains are incurred when you sell an asset for a higher price than you initially bought it for (also known as the asset’s cost basis). Dividends are sometimes paid out to investors from stocks, while interest is earned from fixed-income assets such as bonds, GICs, and other interest-bearing investments.

While I won’t go into too many specifics regarding how taxation works, it’s important to understand how returns are taxed, especially for the purpose of non-registered accounts.

Capital gains are the most tax-efficient form of return, followed by dividends. Interest income is the least tax-efficient form of investment return and is usually taxed directly at your marginal tax rate.

Understanding which account types are available to you is extremely important because they can help to guide and optimize your investment decision-making.

5 Best Investment Accounts in Canada

1. Tax-Free Savings Account (TFSA)

How to Buy US Stocks in TFSA
  • Registered account: Yes
  • Limit on contribution amount: Yes
  • Flexibility: high
  • Asset classes diversity: high

The Tax-Free Savings Account, or TFSA, is one of the best investment account types in Canada. It is a type of registered account that can allow you to save a significant amount in taxes when doing your day-to-day investing.

A TFSA is a tax-exempt account which means that any gains within the account are not taxed. Contributions to a TFSA do not reduce your taxable income (which is the case with tax-deferred accounts).

The amount of money that you can add to a TFSA account is limited by your available contribution room. Contribution room begins to accumulate from either 2009 (when the TFSA was introduced) or from the year in which you turn 18.

Investors that have never contributed to a TFSA and that were over the age of 18 as of 2009 have accumulated $81,500 in total TFSA contribution room until the end of 2022. Starting in 2023, the TFSA contribution room will increase by an additional $6,500, bringing the total up to $88,000.

You can have multiple TFSAs at different financial institutions. The maximum amount that you can contribute to a TFSA applies to all of your TFSAs in aggregate.

The TFSA is very flexible when it comes to what assets can be held inside. You can hold a very wide range of asset classes within, including:

  • Cash
  • GICs
  • Stocks
  • Bonds
  • Funds
  • Alternatives

You are also free to contribute and withdraw funds from a TFSA throughout the year. Withdrawals from a TFSA do not reduce your contribution room but are instead added back to your contribution room as of the next calendar year.

Tax-Free Savings Accounts do not necessarily have to be used to fund your retirement – they are very flexible accounts that can be used for general investing.

If you are looking for additional details on Tax-Free Savings Accounts, make sure to read my article on TFSA pros and cons.

2. Registered Retirement Savings Plan (RRSP)

Convert Your RRSP to an RRIF
  • Registered account: Yes
  • Limit on contribution amount: Yes
  • Flexibility: medium
  • Asset classes diversity: high

The Registered Retirement Savings Plan (RRSP) is another excellent choice when it comes to tax-advantaged accounts. An RRSP is a tax-deferred account, meaning that you pay taxes on your investments once they are withdrawn from the account.

Contributions to an RRSP account are made from your pre-tax income and reduce your taxable income by the amount that you contribute. Your RRSP deduction room for a specific year is based on any previous unused RRSP deduction room plus the current year’s deduction room.

For 2023, the current year deduction room is the lower of the two:

  • 18% of your earned income in the previous year
  • Your annual limit for 2023, which is $30,780

Any unused RRSP contribution room in a specific year is carried forward.

Like a TFSA, an RRSP can house a wide range of investments. These include but are not limited to:

  • Cash
  • GICs
  • Stocks
  • Bonds
  • Funds
  • Alternatives

Any growth within an RRSP account is only taxed when money is withdrawn from the account.

Trading within the account does not have any taxable implications, meaning that you can sell stocks with large capital gains without having to pay taxes on that gain in the particular year (only when money is withdrawn from the RRSP).

Money withdrawn from an RRSP is treated as income in the year that it is withdrawn and taxed at your marginal tax rate. Withdrawals from an RRSP face withholding taxes, meaning that you will have to pay some taxes right as you take money out of the account.

The amount of withholding taxes depends on the amount withdrawn:

  • 10% withholding tax on withdrawals up to $5,000 (5% in Quebec)
  • 20% withholding tax on withdrawals between $5,000 and up to $15,000 (10% in Quebec)
  • 30% withholding tax on withdrawals over $15,000 (15% in Quebec)

This withholding tax is considered at the end of the year as part of your tax return.

A Registered Retirement Savings Plan (RRSP) must be converted to a Registered Retirement Income Fund (RRIF) by the end of the year in which you turn 71. RRIF accounts have a minimum amount that must be withdrawn each year from them.

The minimum amount that must be withdrawn each year from a RRIF account is based on your age in that year.

An RRSP account is most valuable when used to save money for retirement, as it allows your investments to compound over time without the impact of taxes.

For more information on RRSP accounts, check out my RRSP ultimate guide.

3. Non-Registered Investment Account

Wealthsimple Invest Vs. Wealthsimple Trade: Investment Accounts Offered
  • Registered account: No
  • Limit on contribution amount: No
  • Flexibility: high
  • Asset classes diversity: high

The non-registered investment account is the most basic type of account. It does not have any specific properties outside of allowing you to invest the assets held inside of the account and it is not considered a registered account.

When you think of a plain vanilla investment account with no specific features, the non-registered investment account is it.

The non-registered account does not come with any tax advantages and will likely have numerous tax implications over time.

Interest income and dividends are usually taxed in the year that they are received, with dividends receiving preferential tax treatment and interest generally being taxed at your marginal tax rate.

Capital gains (or losses) are incurred once an investment is sold. If you have an investment that has appreciated in price rapidly but has not yet been sold, you are not typically responsible for paying capital gains.

Capital gains are the most tax-friendly type of investment return and net capital losses can typically be carried forward indefinitely or backward for a few years.

The non-registered account is the most flexible type of account in the sense that it comes with virtually no restrictions in terms of depositing money in it. Non-registered accounts are typically some of the largest accounts in Canada, especially for very wealthy investors.

There is no limit to how many non-registered accounts you can have, or to how many different financial institutions you can use to keep your non-registered investment accounts. The non-registered account can also be opened on a joint basis with someone else.

Like the TFSA and RRSP, the non-registered account can house a wide range of investments.

If you are planning to invest, regardless if for the long term or not, you will want to try your best to use registered accounts (which are almost always tax-advantaged) instead of non-registered accounts.

Unless you are looking for flexibility that you can’t get from a registered account, the non-registered account should typically be your last resort.

4. Registered Education Savings Plan (RESP)

Build Your RESP With The Canada Education Savings Grant
  • Registered account: Yes
  • Limit on contribution amount: Yes
  • Flexibility: low
  • Asset classes diversity: high

A Registered Education Savings Plan (RESP) is a plan primarily designed for parents that are looking to save money for their children’s education. It is an excellent way to save money for a child’s post-secondary education over the long term.

Contributions to an RESP do not reduce your taxable income (like contributions to an RRSP). The key benefits of RESP accounts include growing investments inside of the account on a tax-free basis until withdrawn and taking advantage of government grants.

One of the key benefits of an RESP account is that the government generally matches at least part of the contributions that you make to the account in one form or another. Contributions to an RESP are limited to $50,000 per child and are not restricted to a specific maximum per year.

RESP funds can be used to pay for full-time or part-time studies at any of the following:

  • University
  • College
  • Trade school
  • Apprenticeship program
  • CEGEP (in Quebec)

One of the first two ways in which the government contributes free money to an RESP account is through the Canada Education Savings Grant (CESG).

The federal government, through the CESG, matches up to 20% of your RESP contributions, up to $500 per child per year, until the child reaches 17 years of age. Contributing a minimum of $2,500 to an RESP for your child will allow you to get the maximum amount of CESG.

The Canada Learning Bond (CLB) is another way that the government can contribute to an RESP account. The CLB is an incentive of up to $2,000 for low-income families.

Anyone can contribute money to a child’s RESP, including friends and extended family.

Similar to other accounts in Canada, the RESP is extremely flexible in terms of what types of assets can be held within. These can include (but are not limited to) cash, GICs, funds, stocks, and bonds.

While the RESP is limited in flexibility (in terms of being used for post-secondary education), it is an extremely important account to consider opening for your children.

Not only will you be able to take advantage of free money from the government but you will also be able to defer taxes on the investments within the account.

Be sure to check out my comprehensive guide outlining what is an RESP in Canada.

5. Locked-In Retirement Account (LIRA)

What Is A Retirement Plan?
  • Registered account: Yes
  • Limit on contribution amount: not applicable
  • Flexibility: low
  • Asset classes diversity: high

If you have changed jobs and previously had a company pension, you can likely bring it along with you in the form of a Locked-in Retirement Account (LIRA). A LIRA is not a type of account that you can contribute to once it is set up.

A LIRA is a very inflexible type of account that is designed to provide you with an income stream for your retirement later on in life. In almost all cases, you can’t withdraw money from a LIRA until at least the age of 55. At 55 years and older, you may be able to access up to 50% of your LIRA in some provinces.

Aside from being funded by past pension assets, the LIRA functions similarly to an RRSP. Investment actions within the account do not trigger any tax consequences and money is only taxed when it is withdrawn from the account.

A LIRA must also be converted into a Life Income Fund (LIF) by the end of the year in which you turn 71. A LIF account, like an RRIF account, has a minimum withdrawal that must be made each year.

Unlike an RRIF account, LIF accounts also have a maximum amount that can be withdrawn each year. This makes it much harder to entirely liquidate a LIF account.

Minimum and maximum withdrawals from a LIF account are based on your age in each specific year. Similar to withdrawals from an RRSP or RRIF, money withdrawn from a LIF is added to your taxable income in that year and is taxed as income.

There are really no limits to how large a LIRA account can initially be – it depends on the pension assets that you have accumulated from your previous workplace. A LIRA account can hold a wide range of investment assets, similar to other investment accounts in Canada.

If you would like to learn more about Life Income Funds in particular, take a look at my Life Income Funds in Canada guide.

Account Support at Canadian Brokerages

In a lot of cases, Canadians will have multiple accounts at different financial institutions or brokerages. Canadians think that using different brokers can help to diversify risk, but it typically does the exact opposite – it makes it harder to keep track of investments across multiple platforms.

Different brokerages rarely help to diversify risk. The underlying investments in each account are what really determine the overall diversification of your total net worth. Using fewer financial institutions allows you to have better control over your asset classes and potentially overlapping investments.

Trying to keep all of your accounts under one brokerage can be a difficult task. Especially when it comes to non-bank, independent discount brokerages, they typically do not support every single type of Canadian investment account.

If you have a wide range of investment accounts, you may be forced to use more than one financial institution because of account support issues.

Two versatile options when it comes to self-directed brokerages (if you are looking to invest by yourself) are Questrade and Wealthsimple Trade.

Consider using Questrade if you are looking for a broad account variety or using Wealthsimple Trade if you are looking to trade stocks and ETFs without paying commissions.

Frequently Asked Questions

Which Bank has the Best Investment Account in Canada?

A very common question that is encountered revolves around which bank offers the best investment account in Canada. Investment accounts can’t be better or worse – they are either supported by a financial institution or they are not.

Although an account can’t be better or worse, the underlying investments within the account can perform better or worse. How the account performs depends on your investment choices (if it is at a discount brokerage), or on the choices of an advisor (if working with one).

Bank-owned discount brokerages typically offer the widest range of account support but tend to be much less competitive when they come to trading commissions and account fees.

Best High-Interest Savings Account in Canada?

In a lot of cases, you can keep your cash in a high-interest account within different account types (such as TFSA or non-registered accounts).

The best high-interest savings account, or the one that offers the highest interest rate, varies over time. One rule of thumb to consider is that banks rarely offer the most competitive interest rates when it comes to savings products, including high-interest savings accounts (or HISAs).

Non-bank, independent financial institutions typically offer higher rates on their HISAs because they do not have the same internal referral network for providing clients that big banks do. They are forced to compete directly by offering a higher interest rate than their peers.

An alternative to a direct high-interest savings account is to consider investing in a high-interest savings account ETF. You can learn more by reading my outline of the best high-interest savings account ETFs in Canada.

Best Investments in Canada

Canadians have access to an abundance of different investment asset classes in Canada. Some examples include:

  • Stocks
  • Bonds
  • Mutual funds
  • Exchange-traded funds (ETFs)
  • Real estate
  • GICs
  • Alternatives

The best investments in Canada will depend entirely on your personal financial situation. Investors with a low-risk tolerance will find that safer investments (such as GICs and maybe bonds) will be the best investment for them.

Investors with a high-risk tolerance may instead find that stocks, ETFs, or alternatives may be the best investment for them.

Highly-customizable portfolios can be built in a low-cost manner by using ETFs. If you are looking for guidance around building an ETF portfolio, check out my guide on the best ETFs in Canada.


Best Investment Accounts In Canada

If you are looking to invest on your own or even working with an advisor (which I don’t recommend because of the high fees), knowing your account options is extremely important.

Taking advantage of registered accounts or tax-advantaged accounts can lead to incredible tax savings or even higher investment growth. The standard non-registered investment account, although extremely flexible, should only be used in situations when you can’t invest through an account that is tax-advantaged.

It is also critical to have a good understanding that an account type is simply a shell that houses your underlying investments. How well or poorly an account performs depends entirely on the investment decisions made, either by yourself or by your advisor.

If you are a newer investor and are just getting started, be sure to read my overview of how to start investing in Canada to avoid making many unnecessary mistakes early on.

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Author Bio - Christopher Liew is a CFA Charterholder with 11 years of finance experience and the creator of Wealthawesome.com. Read about how he quit his 6-figure salary career to travel the world here.

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