The Tax-Free Savings Account (TFSA) is one of the best investment tools available to Canadians. As an investor, I can appreciate its worth and potential much more than people who simply use it as a savings account.
But, I get that investment isn’t everyone’s cup of tea. And if you are using your TFSA as a savings account, you might as well do so with the best available rates.
So I have compiled a list of best TFSA rates in Canada that might help you maximize the returns from your TFSA funds.
42% of Canadians use their TFSA to hold savings and cash. Only about one in five people use it to hold stocks?
TFSA Savings Rate – Top Pick in Canada
Before diving into all of the options, I wanted to highlight my number one pick.
- TFSA Savings Rates: 1.25%
- CDIC Insurance Protection
- No Annual Fees
- Deposit up to $200,000
- U.S Dollar Account Available
- Below, I break down why I chose EQ Bank as the top online bank in Canada
- For a guide to the best High-Interest Savings Accounts in Canada, read my review here.
- For a guide to the best GIC rates in Canada, read my review here.
When to Use Your TFSA As a Savings Account?
Ideally, you should use your TFSA for investments. It’s an amazing way to get your money to make money for you.
Whatever you earn inside your TFSA is tax-free, whether through dividends (a certain amount paid by a company you have invested in), or capital growth (increasing share prices of the stocks you have bought).
If you think investing is dangerous, you might be confusing it with trading. Long term investment has very low risks, and it offers significantly higher returns compared to a savings account.
That said, there are instances when it might be better to hold cash in your TFSA.
- Use TFSA to save for emergencies.
- For short-term saving goals.
- You are preparing a tax-free cash reserve for investments.
TFSA is Ideal for Investing
The ideal scenario would be to use TFSA for investing. It might seem a bit riskier (which you can mitigate by choosing the right investment vehicle), but its returns could be significantly better.
Let’s consider an example. Say you have a TFSA with a 2% interest rate, and you contribute $6,000 in it every year. In 25 years, you will have $202,000 in your TFSA, about 77% of which will be the amount you placed in it, and just 23% of it would be the interest. In contrast, if you can invest in something (stock, fund, etc.) that grows 6% every year, the same contributions will grow to $354,000 in 25 years. More than half of which will just be the interest.
If you’re a beginner at investing, you can check out my guide on how to start investing in Canada here.
Best TFSA Rates Canada
Before we start looking at the banks, there are three terms that need clarification.
Interest Rates: Interest rates or high-interest savings account (HISA) rates are typically calculated on a daily basis. For these rates, your TFSA money isn’t locked in. You can take it out whenever you want, and your interest will be calculated based on whatever amount you have left in your TFSA.
GIC: Using your TFSA money to buy a Guaranteed Income Certificate (GIC) means that you have locked in your money for a certain amount (anywhere from 30 days to five years). You can’t freely withdraw your money when it’s in a GIC form in your TFSA. But when the term is over, you will get your capital back with interest, which is typically calculated at a higher rate than HISA. Also, the longer the term, the higher your interest rate will be. Term Deposit is a term that’s often used interchangeably with GIC.
#1 Top Choice: EQ Bank
Rates: 1.25% (TFSA HISA) | 1.20% (1-year GIC)
How to Sign Up: EQ Bank’s website
EQ Bank finally opened a TFSA account option in 2020, and Canadians have started opening them in large numbers. With a simple to use platform, the ability to link your bank account to EQ Bank, and a super-easy signup process, it’s easy to see why.
There is no minimum balance requirement to earn 1.25% interest. The interest is calculated daily and paid monthly. The bank also offers GICs, but the TFSA and savings account rates are so generous it might be better to just stick with those.
EQ Bank deposits are backed by Canada Deposit Insurance Corporation (CDIC) so you can rest assured your money is protected.
2. Motive Financial
Rates: 1.25% (TFSA HISA) | 1.40% (1-year GIC)
Link to website: https://www.motivefinancial.com/
Motive Financial is an online bank that offers one of the highest TFSA interest rates in the country. There is no minimum balance requirement to earn 1.25% interest, and you can open an account with just $50. The interest is calculated daily and paid monthly. The bank also offers five GICs, with the five-year one paying 2.15% rate. Its deposits are backed by Canada Deposit Insurance Corporation (CDIC).
3. MAXA Financial
Rates: 1.20% (TFSA HISA) | 1.40% (1-year GIC)
Link to website: https://maxafinancial.com/
MAXA Financial is also a digital financial institution and a division of Westoba Credit Union. The deposits with MAXA Financial are backed up by Deposit Guarantee Corporation of Manitoba. There is no minimum balance requirement to start earning your TFSA interest rates, but you need at least $500 for a GIC in your TFSA. You can access their website and app from anywhere in Canada to simply open up a TFSA or transfer funds.
4. Hubert Financial
Rates: 1.00% (TFSA HISA)| 1.30% (1-year GIC)
Link to website: https://www.happysavings.ca/
Yet another online bank/financial institution that offers decent TFSA rates is the Hubert Financial. You can simply open an account online and requires no transaction fees. The deposits are backed up by Deposit Guarantee Corporation of Manitoba. It’s stated clearly on the company’s website that even though the TFSA amounts are available for withdrawal at any time, it’s not exactly a current account, and you should expect to make frequent transactions.
Rates: 2.10% for the first five months (HISA), then rate is reverted to 0.10%
Link to website: https://wealthawesome.com/tangerine-savings
Tangerine has gotten famous for a very high introductory TFSA interest rate. Though the rate only stays valid for five months and the rate after it is even lower than what’s offered by the big five. CDIC insures its deposits.
6. Implicity Financial
Rates: 1.10% (TFSA HISA)
Link to website: https://www.implicity.ca/
Implicity Financial also offers high-interest rates with zero-fee TFSA account. To open a TFSA with Implicity, you have to open an account with another bank, and then become an Implicity member. The deposits here are backed up by the Deposit Guarantee Corporation of Manitoba.
Rates: 1.00% (HISA)
Link to website: https://www.motusbank.ca/
It’s another digital bank with a stronger presence and a relatively better reputation than most other online financial institutions. Motusbank is a subsidiary of Meridian Credit Union Limited, and its deposits are backed up by CDIC. Its ATM network is also extensive (EXCHANGE ATMs: 3,700 units across the country), where you don’t have to pay any additional charges for withdrawal. It can be considered for your primary banking needs as well.
Read my full review on Motusbank here.
8. Accelerate Financial
Rates: 1.20% (TFSA HISA)
Link to website: https://www.acceleratefinancial.ca/
Accelerate Financial is a division of the Crosstown Civic Credit Union. Its variable account TFSA (the one calculated based on HISA rates) calculates interest on a daily basis and its paid out annually. You can take your funds out anytime you want, and there is no minimum balance requirement. For GIC, the balance requirement is $1,000. Its deposits are also backed up by Deposit Guarantee Corporation of Manitoba.
9. Wealth One Bank of Canada
Rates: 1.50% (TFSA HISA)
Link to website: https://www.wealthonebankofcanada.com/
The interest is calculated daily and paid out monthly. It’s a relatively young bank and was opened in 2016. Currently, it’s a schedule 1 bank with a focus on Chinese Canadians, but it caters to all Canadians. It has an online as well as a physical presence, with retail branches in Ontario and BC. All of its deposits are backed up by CDIC.
10. Alterna Bank
Rates: 1.20% (TFSA HISA)
Link to website: https://www.alternabank.ca/
There is no minimum balance requirement for the regular TFSA, but you need at least $500 in your TFSA to buy a GIC. Its deposits are backed up by CDIC, and it’s an award-winning bank with some of the best products offered in the online banking sphere.
11. Oaken Financial
Rates: 1.25% (HISA)
Link to website: https://www.oaken.com/
Oaken Financial is a trademark of Home Bank, which is a wholly-owned subsidiary of Home Trust Company. Its deposits are backed up by CDIC. The company has deep roots in banking.
12. People’s Trust
Rates: 1.30% (TFSA HISA)
People’s trust has been a solid TFSA rate provider for many years now, and is earning trust with thousands of Canadians.
Looking at some of the best TFSA rates, it’s clear that even in the best-case scenario, the interest you will be earning on your TFSA funds will hover between 1.5% and 2%. And most of the best rates are provided by online financial institutions, typically powered by a credit union.
If you absolutely have to have cash in your TFSA, then it’s smart to choose the TFSA that offers you the best interest rates. If you don’t mind getting your funds locked in for a set duration, consider a GIC. But there are other factors into play as well, when you choose your TFSA. For example, whether you can easily move your funds around (keeping your TFSA withdrawal and contribution limits in mind) or not.
If you’re interested in using your TFSA for investing but not sure where to start, check out my detailed guide on how to start investing in Canada.