What You Need to Know About Your TFSA
The New Year is quickly approaching and this means that it’s time to start planning your savings for 2013. Do you know how much you can afford to save in the New Year or how much you want to save in 2013? A general rule of thumb is for people to save 10% to 25% of their net monthly income; however this of course this depends on several different factors such as your debt repayment obligations, your total family income as well as your total monthly expenses.
If you are planning to save a percentage of your income you should definitely consider investing in a Tax Free Savings Account. In 2009 the Canadian government introduced the TFSA as a way to encourage Canadians to save money every year.
The TFSA is an investment account that is offered by full service brokerage firms, discount brokers and banks to all Canadians who are over the age of 18 years old. As of 2009 Canadians can invest $5000 per year; therefore if you have never contributed into a TFSA you can currently (as of 2012) invest up to $20,000 (4 years x $5000 per year). The TFSA contribution limit is increasing to $5500 per year in 2013.
- $105 per week
- $211 biweekly
- $458 monthly
The investment options in a TFSA are similar to other investment accounts – they include cash, guaranteed investment certificates, mutual funds, exchange traded funds and stocks. All interest, dividends and capital gains earned on investments within a TFSA are completely tax free. This means that you do not receive a tax deduction when you contribute money into a TFSA, but you also have no tax consequences when you withdraw money. TFSA investments do not necessarily have to be used for retirement and your savings can be withdrawn at any time. We will discuss TFSA investment strategies over the upcoming weeks, so be sure to keep reading for more TFSA tips.
Current TFSA Interest Rates on Cash Deposits (as of December 18, 2012)
- CIBC – Bonus Interest on all new TFSA contributions
- ING Direct – Double your TFSA interest as of January 2013
- Scotiabank – 2% on all TFSA contributions
- Bank of Montreal – 1.15%
- RBC Royal Bank – 1.15% on all TFSA cash contributions
- TD Canada Trust – 1.05% on all TFSA savings deposits