The Tax Free Banking Account I am alluding to is, of course, the Tax Free Savings Account . In my discussions with friends, I keep hearing folks simply assume the TFSA is just like a bank account. You deposit money and it grows tax free. The confusions starts with so many banks offering HISA (High Interest Savings Account) or GIC solutions for their TFSA customers, without pointing out that this is only one version of the TFSA.
I have had many discussions with other bloggers about why folks assume that the word Account (in the TFSA) implies Bank Account. I have had many disagree with this assertion, however, I continue to hear folks look confused when I discuss the TFSA like it is an investment account.
The conversations usually start with a friend mentioning they have put money in their TFSA. Usually I will ask, how are they investing these funds? A blank stare sometimes is the response, which is a cue for me to go into explanation mode. My standard patter is to try to get folks to understand that the TFSA is not just a bank account, in that you can use it as an investment vehicle as well. Sometimes I hear crickets chirping after I explain that part, so I usually change the subject to Religion or Politics (safer subjects).
Is a Tax Free Banking Account A Bad Thing ?
If all you wish to do with your Tax Free Banking Account (sorry TFSA) is put money in it and have it grow at 1.5%, good on you. I am happy to hear folks are using the program, however, there are many other ways to use this savings vehicle. I did have one friend say, they used it as a savings account, because they didn’t want to pay the fees the investing firms and banks charged, which is an interesting argument.
- TD Direct Investing will typically charge a yearly fee, if you don’t have a large enough investment block with them (for all accounts). I haven’t paid for my TFSAs, but I also have a large RRSP with Investorline.
- Other banks typically have a “minimum balance” fee, which motivates you to have more money in your TFSA.
- There are typically fees to transfer your TFSA to another bank
- Some banks even charge to withdraw from your TFSA (above and beyond brokerage fees)?
The answer, yes, you can pay fees is truthful, but if you do your research, you should be able to get around them. Doing your research would include, choosing the right bank to have your TFSA with.
The easy statement is:
The Tax Free Savings Account can be a Tax Free Banking Account, but it doesn’t have to be!