A Tax-Free Savings Account (TFSA) is a registered account that lets you save and invest without paying tax on any of the growth. Interest, dividends, and capital gains earned inside a TFSA are tax-free, and so are your withdrawals. Despite the name, it’s not just a savings account. You can hold cash, GICs, ETFs, stocks, bonds, and mutual funds inside it.
For a broader comparison of TFSA, RRSP, and FHSA, see Issue 6 of the hi finance newsletter.
Why It Makes Sense for Students
Your income is low right now, which means your tax rate is low too. The TFSA is built for this stage of life. You don’t get a tax deduction for contributing (unlike an RRSP), but you never pay tax on anything you earn or withdraw. You can take money out at any time, for any reason, with zero tax consequences: emergency fund, tuition gap, a trip, anything.
Contribution room starts building at age 18 whether or not you’ve opened an account. Every year you wait is a year of tax-free compounding you don’t get back.
Who Can Open One
You need to be a Canadian resident, 18 or older, with a valid SIN.
One provincial note: in BC, Nova Scotia, New Brunswick, Newfoundland and Labrador, the Northwest Territories, Yukon, and Nunavut, the legal age to sign contracts is 19. You can’t open a TFSA until 19 in those provinces and territories. Your contribution room still starts accumulating at 18 though, so when you turn 19, two years of room is available immediately.
How Contribution Room Works
The government sets an annual limit that gets added to your room every January 1. The limit for both 2025 and 2026 is $7,000. Unused room carries forward indefinitely.
Cumulative room available in 2026 if you’ve never contributed:
| Year you turned 18 | Room available in 2026 |
|---|---|
| 2009 or earlier | $109,000 |
| 2018 | $57,500 |
| 2019 | $51,500 |
| 2020 | $45,500 |
| 2021 | $39,500 |
| 2022 | $33,500 |
| 2023 | $27,500 |
| 2024 | $21,000 |
| 2025 | $14,000 |
| 2026 | $7,000 |
Three rules that catch people off guard:
Withdrawals come back, but not right away. Money you take out gets added back to your contribution room on January 1 of the following year, not immediately. Withdraw and re-contribute in the same calendar year and you’ve over-contributed.
Investment growth doesn’t count against your room. If your investments go up $500, that doesn’t reduce next year’s limit.
Over-contributing has a penalty. The CRA charges 1% per month on the excess amount until it’s removed. They won’t warn you.
What to Hold Inside It
Think of the TFSA as a container. You decide what goes in.
Conservative: A high-interest savings account (HISA) works like a regular savings account inside a TFSA. It earns interest and is fully liquid. GICs offer a fixed rate for a set term with guaranteed principal.
Growth-oriented: ETFs are the most common choice for students investing for the long term. They offer low fees, easy diversification, and accessible through platforms like Wealthsimple or Questrade. Stocks, bonds, and mutual funds are also options.
For most students starting out, a HISA TFSA at your bank is the easiest entry point. Once you have more to invest and a longer time horizon, a self-directed TFSA with ETFs tends to make more sense.
One thing that catches people off guard: depositing money into a TFSA doesn’t automatically invest it. If you put in $500 and leave it as cash, it earns almost nothing. You need to buy investments with it for it to grow.
TFSA vs. RRSP
For most students, the TFSA comes first. Your income is low now, so an RRSP deduction saves you very little tax today. The TFSA gives you flexibility. Withdraw anytime without tax, without penalty, without affecting your income. RRSP withdrawals count as taxable income. TFSA withdrawals never do.
The general rule: TFSA when your income is low, RRSP once you’re in a higher tax bracket and the deduction is worth more. If you’re saving for a home, look at the FHSA first. It gives you both a tax deduction and tax-free withdrawals.
How to Open One
- Get your SIN
- Choose where to open it: any bank or credit union for a simple savings TFSA, or Wealthsimple, Questrade, or your bank’s direct investing platform for a self-directed TFSA
- Check your contribution room at CRA My Account. Note that CRA’s display is often a year behind, so calculate your own room if you’ve made recent transactions
- Contribute. Even $20 a month adds up. Starting matters more than the amount.
Common Mistakes
Over-contributing. The CRA doesn’t notify you. Track your own room.
Re-contributing a withdrawal in the same calendar year. Wait until January 1 before putting that money back in.
Leaving cash uninvested. The TFSA is the account. Growing your money requires purchasing investments inside it.
Holding US dividend-paying stocks in a TFSA. The US government withholds 15% tax on dividends paid to Canadian TFSAs, which you can’t recover. Consider holding those in an RRSP instead.
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