The Problem with a Regular Savings Account
A regular savings account is fine for day-to-day banking. But if you're holding money there to grow your savings, you're giving away free money, to the government. Every dollar of interest you earn in a regular savings account is added to your taxable income for the year.
If you're in a 30% marginal tax bracket and you earn $500 in interest, you keep only $350. The other $150 goes straight to the CRA.
How a TFSA Changes the Equation
A TFSA is not technically a savings account. It's a registered account that can hold savings accounts, GICs, stocks, ETFs, and more. When you hold a high-interest savings account inside a TFSA, the interest is completely tax-free.
Same money. Same interest rate. Zero tax. That's the difference.
Side-by-Side Comparison
Let's say you have $20,000 earning 4% annual interest over 10 years.
- Regular savings account: You'd earn roughly $8,889 in interest, but after 30% tax you'd net around $6,222.
- TFSA savings account: You'd earn the same $8,889 in interest and keep every cent of it.
That's over $2,600 extra, just by using the right account.
But My Bank Doesn't Offer TFSA Savings?
Every major Canadian bank offers TFSAs. So do online banks like EQ Bank and Oaken Financial, which often offer higher interest rates than the big five banks. In Ottawa, you can also check out credit unions like Alterna Savings, which are local and competitive.
If your current bank's TFSA savings rate is low, you're allowed to have TFSAs at multiple institutions, just watch your total contribution room across all of them.
When Would You Use a Regular Account?
Regular savings accounts still make sense for your everyday banking, your paycheque comes in, bills go out. You might also keep a small cash buffer there for transfers.
But for any money you're intentionally saving or growing, emergency fund, vacation savings, a down payment, a TFSA is almost always better.
Ottawa Note
Many newcomers to Ottawa arrive and open an account with one of the big banks at a branch near them. That's a perfectly fine starting point. But within your first few weeks, it's worth asking your banker to also open a TFSA for you. It takes just a few minutes and sets you up on the right path from day one.
The Bottom Line
If you have money sitting in a regular savings account earning interest, you're paying tax you don't have to pay. Move that money, or at least new savings going forward, into a TFSA. It's one of the simplest and most impactful financial moves you can make in Canada.
