A Money Coach in Canada

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Money Coaching tip, Jan 29, 2010

Look.  There’s no downside and all kinds of upside to the Tax Free Savings Account. Become a saver, already!

Here’s how it works:

1. Set up a Tax Free Savings Account at any Canadian bank you like.

2. Every year, you can put in up to $5000. But $100 is just fine too.

3. Whatever that $5000 earns, you are never taxed on.  So you can go conservative and just have a high-interest savings account within your Tax Free Savings Account or you can invest in Stock  (*cough* Apple anyone?) and again if that stock doubles, triples, you don’t pay tax on whatever you make.

4. You can withdraw money with 24 hours notice whenever you like, and there is no penalty or tax implications.

5. The following year (or the following or the following til death) you can not only put in another $5000 all over again but you can also put in the same amount you took out earlier (per #4 above).

Personally, I’ve set mine up with ING Direct with a savings account currently paying 3%.   Every payday, $50 automatically transfers into it, plus I throw lump sums in throughout the year as I can.

I’m using this as my Emergency Fund.

Some people argue that 3% isn’t much (only $150 a year if I managed to throw in an entire $5000) and that Tax Free Savings Accounts should be used for something like stocks which could do a Whole Lot Better.  (The reasoning is What’s The Point of saving taxes on a paltry $150/yr when I could double my money – one can hope – and then all *that* money is tax free).  My thinking is that capital gains (in normal English = how much a stock increases in value) and dividends (in normal English = profits at the end of the year and divided up, some of which ends up in my pocket) are taxed the least, so I might as well do that kinda investing somewhere else.

I digress.  The point is, for heaven’s sake, get one set up already.  Every last Canadian one of you.

Oh and if you use ING like I do (shameless pitch here), quote 14641937S1 and we’ll each get a $25 bonus.

About the Author

Imagine if Canadians were known for being all over their money. Engaged. Proactive. Getting out of debt. Savvy. Saving. Generous. Nancy wants to help. Nancy started her own journey with money over 15 years ago, and formed her company “Your Money by Design” in 2004 to help others along the same path. It’s not the usual financial advising/investment stuff. It’s about taking control of day-to-day finances –managing monthly cashflow effectively, spending appropriately, getting out of debt, saving. If you're ready to take control over your finances, pop by her business site, YourMoneybyDesign.com


  1. Ding Ding Ding! I was right. I think I have one but I really better check!


    Jan 29, 2010
  2. I had my 2009 TFSA in an ING Direct Account as it was my emergency fund, so I wanted to know it was safe. But I’ve now built up another emergency fund and decided that I want to make some more money (my thought process was “who cares if it’s tax-free if it’s only $150? And I won’t pay much tax on $150). I’ve put my 2009 and 2010 TSFA money into a mutual fund for now, but my plan is to learn more about investing so I can become more hands-on in the future.
    .-= Beth´s last blog ..Do You Get This? =-.


    Jan 29, 2010
  3. I like it.


    Jan 30, 2010
  4. brad

    I have two minds on this as well. Like many others I’m using my TFSA (which I now have $10K in as of the beginning of January) as my emergency fund, and it’s at ING earning 3% for now (I’m sure they’ll drop that rate very soon).

    But I’ve always wanted to set aside a little “mad money” for direct investing in stocks — money that I wouldn’t be too sad about losing if the stock tanks, but which could grow considerably if I’m lucky. And $5,000 per year is just the right amount for me to do that. I’ve heard stories of people whose $5,000 TFSA investment in individual stocks is now worth $30,000 after one year, but I’ve also heard stories of people whose $5,000 TFSAs are now worth $500. You have to go into it with both expectations.

    In four years when my TFSA emergency fund is big enough to really serve as my emergency fund (I’m figuring $30K would be a big-enough emergency fund for me, covering my living expenses and mortgage payments for quite a few months if I lose my job, and also covering major unexpected repairs to the house), then I’ll start playing with my TFSA money.


    Feb 06, 2010

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