What a Tax-Free Savings Account does

A Tax-Free Savings Account (TFSA) is a registered savings account where the money you earn — interest, dividends, or investment gains — is not taxed by the federal government. You can withdraw money whenever you want without penalty, and withdrawals do not reduce your income for tax purposes. This is different from a regular savings account, where interest counts as taxable income.

The account itself is the container. What you put inside it — cash, GICs, stocks, mutual funds — depends on what your bank or investment provider offers. The tax benefit applies to whatever grows inside, not to the account type.

You must be a Canadian resident, at least 18 years old, and have a valid Social Insurance Number to open one. Non-residents and people under 18 cannot hold a TFSA.

Key Takeaways

  • Money you earn inside a TFSA is not taxed federally, but the account itself is just a container — you choose what to hold in it.
  • You can withdraw money at any time without penalty, and the amount you withdrew becomes contribution room again the following year.
  • Your bank or investment provider sets the contribution limit each year based on your age and history; you can check your personal limit on the CRA My Account website.
  • Opening one takes the same steps as a regular savings account — you will need ID, proof of address, and your Social Insurance Number.
  • A TFSA is separate from an RRSP; they serve different purposes and have different rules about who can contribute and when.

Where to open a TFSA

You can open a TFSA at any bank, credit union, or investment firm that offers them. Most major banks — Royal Bank, TD, Scotiabank, BMO, CIBC — offer TFSAs as part of their standard account lineup. Online banks and credit unions also offer them, sometimes with lower fees or higher interest rates on the savings portion.

Before you choose a provider, think about what you want to hold in the account. If you want a straightforward savings account that earns interest, any bank will do. If you want to buy stocks or mutual funds, you need a brokerage or investment account, which banks and investment firms provide. Some banks charge monthly fees for investment accounts; others charge per trade. Ask what the costs are before you open.

You do not need to open a TFSA at the same institution where you have your chequing account, though many people do for convenience.

What you need to bring or provide

The documents and information required are the same as for any savings account: a government-issued photo ID (driver's license, passport, or provincial ID card), proof of your current address (a utility bill, lease, or bank statement dated within the last 90 days), and your Social Insurance Number.

Some banks let you open an account online if you have online banking set up with them already. Others require you to visit a branch in person. Call ahead or check the bank's website to see which option is available to you.

If you are opening the account in person, bring the original documents. If you are opening online, you may be asked to upload photos of them or verify them through your existing online banking login.

Understanding contribution room and annual limits

The federal government sets a maximum amount you can contribute to a TFSA each year. This limit changes periodically — it has been $6,500 per year since 2023, but it was $5,500 in earlier years and $6,000 in others. Your bank will not let you contribute more than your personal limit in a given year.

Your contribution room is the total amount you are allowed to put in across all your TFSAs combined. If you have never opened a TFSA and you are over 18, your room includes all the years since 2009 (when TFSAs began) plus the current year. If you contributed $3,000 last year and the limit was $6,500, you have $3,500 of unused room left over. That unused room carries forward — you can use it next year in addition to the new year's limit.

If you withdraw money, that amount becomes contribution room again on January 1 of the following year. This is one of the biggest advantages of a TFSA: you can take money out and put it back in without losing the tax benefit.

To find out your exact contribution room, log into CRA My Account on the Canada Revenue Agency website, or call the CRA at 1-800-959-5525. Your bank can also tell you what room you have left in your account.

The step-by-step process to open one

First, decide where you want to open the account and whether you want to do it online or in person. Visit the bank's website or call to confirm what documents you need and whether appointments are required.

If you are opening in person, gather your ID, proof of address, and your Social Insurance Number, then visit a branch. A staff member will ask you to fill out an account opening form. This form asks for your name, address, date of birth, Social Insurance Number, and employment information. It also asks you to confirm that you are a Canadian resident and at least 18 years old.

If you are opening online, log into your existing online banking (if you have it with that bank) or follow the bank's online account opening process. You will answer the same questions and upload photos of your documents. Some banks verify your identity through a video call with a staff member.

Once the bank approves your process, your TFSA is open and you can deposit money. This usually happens the same day if you are in a branch, or within one to three business days if you applied online.

How to fund your account and what you can hold in it

You can fund a TFSA by transferring money from another bank account you own, depositing a cheque, or making a cash deposit at a branch. Some banks also let you set up automatic transfers from your chequing account.

What you can hold depends on the type of TFSA you opened. A savings TFSA holds cash and earns interest — this is the simplest option and good if you want a safe place to save. An investment TFSA lets you buy stocks, bonds, mutual funds, or exchange-traded funds (ETFs). Investment TFSAs usually have more fees, but they give you more options for growth.

You do not have to decide everything at once. Many people open a savings TFSA first to understand how it works, then move money to an investment account later if they want to invest.

TFSA versus RRSP: which one to use

A Registered Retirement Savings Plan (RRSP) is a different type of registered account with different rules. The main differences are: contributions to an RRSP reduce your taxable income in the year you make them (which can lower your taxes), but withdrawals are taxed as income. A TFSA does not reduce your taxable income when you contribute, but withdrawals are never taxed.

RRSPs are designed for retirement savings. TFSAs are flexible — you can use them for any goal, and you can withdraw money without penalty. If you need the money before retirement, a TFSA is usually better. If you want to reduce your taxes now and save for retirement, an RRSP might be better.

You can have both accounts at the same time. Many people contribute to an RRSP first to get the tax deduction, then use a TFSA for additional savings or shorter-term goals.

Frequently Asked Questions

Can I have more than one TFSA?

Yes, you can open TFSAs at multiple banks or investment firms. However, your total contributions across all of them cannot exceed your annual contribution limit. The CRA tracks your total contributions, so if you go over the limit across all accounts, you will owe a penalty tax. It is simpler to keep one TFSA unless you have a specific reason to split them.

What happens if I withdraw money from my TFSA?

The money is yours to use with no tax penalty or withdrawal fee. The amount you withdrew becomes contribution room again on January 1 of the next year. For example, if you withdraw $2,000 in June, you can contribute that $2,000 again starting January 1, in addition to the new year's contribution limit.

Do I pay tax on interest earned in a TFSA?

No. Interest, dividends, and investment gains earned inside a TFSA are not taxed federally. This is the main benefit of the account. You only pay tax on money you earn outside a registered account.

What if I am not a Canadian resident?

You cannot open a TFSA if you are not a Canadian resident for tax purposes. If you move out of Canada, you can keep your TFSA open, but you cannot contribute to it anymore. Withdrawals are still tax-free.

Can I transfer money from an RRSP to a TFSA?

You can withdraw money from an RRSP and deposit it into a TFSA, but the withdrawal counts as income and is taxed in the year you withdraw it. There is no direct transfer that avoids this tax. If you want to move registered savings, speak to your bank about your options.