Once Michael Del Priore started making a stable income, he wanted to benefit from his savings.
Del Priore is a customer service representative at TD Canada Trust and a fourth-year business student at the University of Guelph-Humber. After he started working at the bank he learned that tax-free savings account(TFSA) is a beneficial way of saving.
Del Priore opened a TFSA after he saved about $5,000. He wanted to “make more capital gains on his investments” than he would in a regular savings account.
Orest Vesna, a former CIBC financial analyst and a fourth-year business student at the University of Guelph-Humber said, “a tax-free savings account is a vehicle in which you can park your savings and the interest accumulated in those savings is tax-exempt from the government forever.”
Vesna said people can gain interest through a TFSA. The interest rate is decided by their financial institutions and the key interest rate set by the Bank of Canada. At CIBC, as of Feb. 7, 2018, the interest rate was 0.8 per cent for every $25. As opposed to the TFSA, people have to pay tax on the interest gained through a regular savings account.
According to Steven Routenburg, a chartered professional accountant and business professor at University of Guelph-Humber, tax-free saving accounts were formed in 2009 to let people invest and save money on a tax-free basis.
Routenburg said, “the government decided at the time that it was worthwhile setting up something that people could use to save money and as an investment vehicle.” He said if people make income through their investments in a tax-free savings account, they’re able to withdraw the money without paying tax.
Del Priore said people can contribute up to $5,500 per year in that account. He said in order to open a TFSA, a person has to be 18 years old. He said if a person contributes over the limit, the Canada Revenue Agency will issue a penalty or they would have to pay tax for the amount they over contribute.
The contribution is cumulative, meaning if someone doesn’t use the $5,500 one year, the next year they may contribute double.
According to Vesna, using a tax-free savings account is the most beneficial way to invest because of the tax savings in the long run.
Routenburg said it is beneficial for students to open a tax-free savings account. He said, “any tax deferred savings is always a good thing since everything grows tax free inside the account.”
According to Routenburg, people can open a tax-free savings account through investment advisors or at a bank. Before opening an account, he said it is important to meet with an investment advisor or research on different banks in order to get the best deals.
https://www.canada.ca/content/dam/cra-arc/migration/cra-arc/E/pub/tg/rc4466/rc4466-17e.pdf
If they want to go a step beyond a savings account, Vesna said people can link their TFSA to investments like guaranteed investment certificates, which is one of the safer investments since it has a low interest rate and a low return. He said people can also buy “growth stocks, penny stocks, shares of different companies, contracts and futures.” If people want to get advice on investments, Routenburg said they should talk to investments advisors.
According to Routenburg there are no disadvantages of opening a tax-free savings account. He said since saving money is difficult, it is beneficial to get interest without paying tax on it through a tax-free savings account.