Save Money with a Tax Free Savings Account
Unless you’ve been in hibernation for the last year you have most likely heard of the new Tax Free Savings Account (or TFSA). A TFSA is registered savings plan to help you suppliment your investments or save for a rainy day. All interest gained on money in the account or money withdrew from the account is tax free. Since earnings are tax free, TFSA’s are non tax deductible Currently, you can contribute a maximum of $5000 per year to your TFSA, but this limit will be subject to inflation and rounded to the nearest $500. Another great thing about a TFSA is that most of the investing options allow you full access to your money anytime with a simple phone call.
There are many different types of investment opportunities that you can capitalize on with a TFSA which include: GICs, Mutual Funds, Stocks and Bonds, and cash deposits. One investment option that looks particularly inviting is the Escalating Rate TFSA GIC (non-redeemable). With the market as volitile as it is, I think a GIC is the safest way to go. This GIC goes from 1.5% interest in the first year up to 7% in the 5th and final year. The only thing to remember with this type of investment is that it is locked in for 5 years. If you can afford to have the money sit in the GIC for a long period of time, this investment will automatically put the principle and interest earned in a new 5 year GIC after the previous term has expired. If you would like access to the GIC funds after 5 years you have to instruct the bank not to renew.
CIBC has a calculator that will show you how much you can save with a TFSA instead of a taxible account. Click here to try it out
