What a TFSA is and who can open one

A Tax-Free Savings Account (TFSA) is a registered savings account where the money you earn — interest, dividends, capital gains — is never taxed, and you can withdraw it anytime without penalty. You do not have to report TFSA income on your tax return. The account belongs to you alone; a spouse or partner cannot access it or claim the funds.

To open a TFSA, you must be a Canadian resident, at least 18 years old, and have a valid Social Insurance Number (SIN). You can have only one TFSA at a time, though you can move money between institutions. Non-residents and those under 18 cannot open one, even if they have a SIN.

The government sets a yearly contribution limit — the maximum you can deposit in a calendar year without penalty. That limit has been $6,500 per year since 2023, though it changes periodically with inflation. If you do not use your full limit in a given year, the unused room carries forward indefinitely and stacks with future years' limits.

Key Takeaways

  • You can open a TFSA at any bank, credit union, or investment firm that offers registered accounts, and the process takes 15 to 30 minutes online or in person.
  • You will need your SIN, proof of Canadian residency (a driver's license or utility bill), and a piece of government-issued ID to complete the process.
  • Contribution room accumulates year to year if you do not use it, so you can catch up in future years without losing the unused limit.
  • Money in a TFSA grows tax-free and can be withdrawn at any time, but over-contributing in a single year triggers a 1 percent monthly penalty on the excess amount.
  • You can hold cash, GICs, stocks, bonds, or mutual funds in a TFSA, depending on what the institution offers.

Where to open a TFSA and what information you need

You can open a TFSA at any federally regulated bank (Royal Bank, TD, Scotiabank, BMO, CIBC), most provincial credit unions, online banks (Tangerine, EQ Bank, Simplii), and investment firms (Questrade, Wealthsimple, Interactive Brokers). Each institution offers different account types — some hold only cash, others allow stocks and mutual funds — so choose based on what you plan to invest in.

Before you start, gather these documents: your Social Insurance Number, a piece of government-issued photo ID (driver's license, passport, or provincial ID card), and proof of Canadian residency dated within the last 90 days (utility bill, lease, or mortgage statement). Some institutions accept a second piece of ID instead of a residency document if your photo ID shows your current address.

You can open an account online, by phone, or in person at a branch. Online takes 15 to 30 minutes and you can fund it when ready. In-person or phone applications may take a few business days for the institution to verify your information and set up the account.

How contribution room works and what happens if you over-contribute

The Canada Revenue Agency (CRA) tracks your TFSA contribution room automatically. When you turn 18, your room begins to accumulate at the yearly limit set by the government. You can check your total available room by logging into My Account on the CRA website, calling the CRA at 1-800-959-8281, or asking your financial institution.

If you deposit more than your available room in a single year, the excess amount is subject to a 1 percent monthly penalty on the overage. For example, if your limit is $6,500 and you deposit $7,000, you owe a penalty of $5 per month ($500 × 1%) until you withdraw the $500 excess. The penalty is calculated and reported by the CRA; you cannot avoid it by withdrawing the money quickly.

Withdrawals do not reduce your room in the year you withdraw — they add back to your available room on January 1 of the following year. So if you deposit $6,500 and withdraw $3,000 in the same year, you still have zero room left for that year. On January 1 next year, you regain the $3,000 plus the new year's limit.

What you can and cannot hold in a TFSA

TFSAs can hold may be able to access investments: cash, GICs (may provide Investment Certificates), bonds, stocks listed on a Canadian or foreign exchange, mutual funds, and ETFs (exchange-traded funds). Some institutions also allow you to hold US-dollar cash or foreign currency investments.

You cannot hold prohibited investments: cryptocurrency, penny stocks (shares trading under $1 on certain exchanges), commodities like gold or oil, or derivatives like options and futures. If you accidentally buy a prohibited investment, the CRA can deem the entire account non-registered, which means all growth becomes taxable retroactively. Check with your institution before buying anything unusual.

The type of investment you can hold depends on the institution. A basic savings account at a bank holds only cash and GICs. A self-directed TFSA at an investment firm lets you buy individual stocks and ETFs. Choose an institution that offers the investment types you want.

Funding your TFSA and moving money between institutions

Once your account is open, you can fund it by transferring money from a chequing or savings account at the same institution, or by setting up a transfer from another bank. Most transfers take one to three business days. Some institutions also accept cheques or cash deposits at a branch.

If you want to move your TFSA to a different institution — to get better interest rates, lower fees, or access to different investments — you can do a direct transfer. Ask your new institution to initiate a TFSA transfer form. They will contact your old institution and move the funds without you having to withdraw and re-deposit, which keeps the contribution room intact. Direct transfers usually take five to ten business days.

Do not withdraw the money yourself and deposit it at a new institution in the same year, because the CRA will count the withdrawal as a withdrawal (reducing your room next year) and the deposit as a new contribution (using your current year's room). This can accidentally create an over-contribution. Always use a direct transfer when switching institutions.

How TFSA interest and investment growth work

Any money your TFSA earns — interest on cash, dividends from stocks, capital gains when you sell an investment for more than you paid — stays in the account tax-free. You do not report it on your tax return, and it does not affect your income for the purposes of means-tested benefits like the Canada Child Benefit or Old Age Security.

The growth does not count toward your contribution limit. If you deposit $6,500 and it grows to $7,000, you still have zero contribution room left for that year. The $500 gain is yours to keep tax-free, but it does not give you extra room to deposit more.

Different institutions pay different interest rates on cash TFSAs. As of early 2024, rates range from 3.5 to 5.5 percent depending on the bank, so it is worth comparing before you open. Investment returns (stocks, mutual funds, ETFs) vary based on market performance and are not may provide.

Withdrawing money and closing your TFSA

You can withdraw any amount from your TFSA at any time without penalty or tax. The money lands in your account within one to three business days, depending on the institution. Withdrawals do not affect your income and do not trigger any tax consequences.

When you withdraw, the amount you took out is added back to your contribution room on January 1 of the following year. So if you withdraw $3,000 in June, you cannot re-deposit that $3,000 until January 1 of next year without over-contributing. The CRA tracks this automatically, so your institution will tell you your available room.

To close your TFSA, contact your institution and ask them to close the account. They will transfer any remaining balance to a chequing or savings account you specify, or issue a cheque. Closing does not affect your contribution room — it straightforward ends the account. You can open a new TFSA at any time.

Frequently Asked Questions

Can I have more than one TFSA?

No. You can have only one TFSA at a time under Canadian law. If you open a second one, the CRA will treat the second account as a non-registered account, and any growth becomes taxable. You can move money between institutions using a direct transfer, but you cannot hold two active TFSAs simultaneously.

What happens to my TFSA if I move out of Canada?

You can keep your TFSA open and it remains tax-free, but you cannot make new contributions once you become a non-resident. Any growth already in the account stays tax-free. If you return to Canada and regain residency, you can resume contributions using your accumulated room.

Do I need to report my TFSA on my tax return?

No. TFSA income and withdrawals do not go on your tax return. The CRA receives information from your institution about the account, but you have no reporting obligation. This is one of the main advantages of a TFSA over a regular savings account.

Can my spouse or partner access my TFSA if I die?

No. A TFSA is yours alone and does not automatically pass to a spouse. You must name a beneficiary or include the TFSA in your will. If you die without naming a beneficiary, the account becomes part of your estate and is distributed according to your will or provincial law.

What is the difference between a TFSA and an RRSP?

A TFSA has no contribution limit based on income, allows tax-free withdrawals anytime, and does not reduce your taxable income. An RRSP (Registered Retirement Savings Plan) limits contributions based on your earnings, taxes withdrawals as income, but reduces your taxable income when you contribute. TFSAs are better for short-term savings; RRSPs are better for retirement savings if you expect to be in a lower tax bracket later.