Aug 5, 2026
Follow us on Google for more Money.ca news
Add us on Google
While we adhere to strict editorial guidelines, partners on this page may provide us earnings.
On the surface, a high-interest savings account (HISA) with a 4% rate looks exactly the same whether it's held inside a Tax-Free Savings Account (TFSA) or a regular, non-registered account — the interest rate is identical. What isn't identical is how much of that interest you actually get to keep.
According to the CRA, interest income earned outside a tax-sheltered account, such as a TFSA or Registered Retirement Savings Plan (RRSP), is taxed as regular income, just like wages from a job. If you’re in a high tax bracket, you could be giving up close to half of the interest you earn over the course of a year. It’s a cost many Canadians don't fully appreciate until tax season arrives and those tax slips show up.
Advertisement
With 2026 well underway and new TFSA contribution room now available, it's a good time to take another look at where your savings are sitting.
Thanks for subscribing!
The best of Money.ca delivered weekly.
By signing up, you accept Money.ca Terms of Use, Subscription Agreement, and Privacy Policy.
How savings interest is actually taxed in Canada
When you earn interest on a savings account, GIC or bond held outside a registered account, it must be reported as income and is taxed at your marginal tax rate, or the tax rate that applies to your last dollar of income.
Unlike capital gains, where only half the gain is taxable, or eligible dividends, which receive preferential tax treatment through the dividend tax credit, interest income gets no special break.
That means two people earning the same advertised interest rate can end up with very different returns after tax. Someone in a 20% tax bracket will keep more of their interest than someone paying tax at 40%.
Must Read
- Warren Buffett used these 4 solid, repeatable money rules to turn $9,800 into a $150B fortune. Here’s how to apply them to your own life
- Stop the leak: 5 costs Canadians (still) overpay for every single month. How many are sabotaging your 2026 budget?
- Three in four Canadians say their insurance premiums have increased in the last two years. Compare 20+ quotes on Rates.ca and save up to 20% when you bundle home and auto
Join 19,000+ readers and get Money.ca’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
The real after-tax difference between a TFSA and a non-registered HISA
Here’s an example. Suppose you have $10,000 in a HISA earning 4.00% interest. Over the course of a year, that account generates $400 in interest.
If the account is held outside a TFSA and you're in a 40% marginal tax bracket, roughly $160 of that interest will go to taxes, leaving you with about $240 after tax. Your effective return drops from 4.00% to about 2.40%.
Inside a TFSA, however, you keep the entire $400 because investment growth and withdrawals are tax-free under CRA rules. The difference grows as savings balances grow over time, instead of being reduced by annual taxes.
Whether you’re a beginner or a pro, find the best trading platform for you. The best Canadian brokerage offers the tools you need to grow your wealth. To get started — and earn 2% or more on every dollar you save — open a no-fee TFSA high-interest savings account with EQ Bank. Start building your TFSA today with EQ Bank.
How much unused TFSA room you likely still have
The annual TFSA contribution limit for 2026 is $7,000, marking the third consecutive year at that level. Canadians who were at least 18 years old in 2009, when the TFSA was introduced, and have never contributed now have $109,000 of cumulative contribution room available.
Advertisement
Many Canadians still haven't used all of that room. According to the most up-to-date CRA data, covering the 2024 tax year, roughly 1.7 million Canadians maximized their contributions that year — a small percentage of the more than 19 million TFSA account holders at the time.
Before you put your additional savings into a regular account, check your CRA My Account to see whether you still have unused TFSA contribution space available. Just keep in mind that the contribution room shown may not immediately reflect recent deposits or withdrawals.
What to do now
If you haven't reviewed your TFSA recently, now is a good opportunity. A few minutes spent checking your available contribution room could help you avoid paying unnecessary tax on future interest income.
Before opening another non-registered savings account, consider taking these steps:
- Log into CRA My Account to confirm your available TFSA contribution room.
- Remember that the contribution room displayed by the CRA may not yet reflect deposits made earlier this year.
- Direct new savings into a TFSA-held HISA or GIC before using a non-registered account.
- Compare TFSA-eligible HISAs and GICs offered by banks and self-directed investing platforms before you decide where to keep your savings.
- Review your available contribution room again after filing your tax return, since it updates each year.
For Canadians with unused TFSA room, one of the easiest ways to improve after-tax returns isn't finding a higher interest rate, but simply making sure your savings are in the right type of account. In many cases, that small change can mean keeping hundreds of dollars more of your interest every year, instead of handing it over in taxes.
You May Also Like
- This 7-step plan from Dave Ramsey is designed to help you ditch debt, save more and build wealth — here’s how it works
- Prioritize these 4 critical investments and watch your net worth skyrocket
- Focus on these 3 ‘magic numbers’ to become a millionaire — and only on these numbers. How do you stack up?
- Millionaires under 43 are reshaping investing — just 25% of their portfolios are in stocks. Here’s where their money is going
The most expensive financial mistakes are often the ones you don't see coming. Join 19,000+ Canadians who get the money moves, risks and opportunities shaping their finances — delivered free each week. Subscribe now.
Colin Graves is a Winnipeg-based financial writer and editor whose work has been featured in publications such as Time, MoneySense, MapleMoney, Retire Happy, The College Investor, and more. Before becoming a full-time writer, Colin was a bank manager for over 15 years.
Managing Money • 2h ago
The $1.25 million tax break business owners need to check before they sell
Managing Money • Aug 01
