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Don't let your investments go to waste: why do you need TFSA?

TFSA Inslyf

August 12, 2022

When you think about TFSA (Tax-Free Savings Account), you would think you are saving money for your future. As of 2022, you can deposit up to $6,000, and this will grow tax-free till you withdraw the funds from the account. These accounts primarily come in three forms:

  • Annuity contracts :

    These are issued by an insurance company and are legal documents that can bind up to four parties. The contract holds the insurance company liable for making regular payments to the annuitant once they raise a request for payments or retire.

  • Deposit :

    This type of account works the same way as a standard savings account, and as the account holder, you deposit the money into the account where it accrues interest over time. One important advantage of this type of account is if you want emergency funds, this account offers the perfect solution.

  • Arrangement in trust :

    It is an agreement where a third party, normally a bank, holds the assets of a beneficiary. Many holders prefer to use trusts over a will as beneficiaries have quicker access to the assets on hold. In addition, trusts have the potential to reduce estate taxes and court fees.

However, as you keep on making your deposits in a TFSA, you may wonder if your investments are protected or not and whether there is any form of TFSA insurance that can help you reclaim your funds if there are any issues. In this blog post, we discuss that in detail. Read on.

How are your deposits protected?

The deposits that are held in a TFSA are separately protected from the depositor's eligible deposits held in other insured categories, such as those held in their individual names. As an example of a portfolio within a TFSA at one CDIC member institution- and what qualifies and does not qualify for CDIC coverage.

  • $20,000 in a GIC- qualifies

  • $90,000 in a term deposit- does not qualify

  • $50,000 in stocks and bonds- qualifies

  • $130,000 in mutual funds- does not qualify

The complete portfolio of deposits- $290,000

The deposits protected- $100,000

What is protected under TFSA?

Within the insured category of a TFSA, the above GIC and term deposit are eligible to deposit products and are protected for up to $100,000 of CDIC protection. So, $100,000 of the eligible $110,000 within the TFSA category is protected under this insurance policy. You should know that this type of coverage does not apply to bonds, mutual funds and stocks.

If the purpose of you opening a TFSA is to save money, for example, to pay the down payment of a new house or to purchase a new car, you should keep it in something low-risk like cash or GICs. If you are thinking of long-term investments for your retirement, you should opt for a diversified portfolio that can move up and down over time but is not likely to go to zero. To know more contact our team!