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January 14, 2025

Comparison of tax-advantaged savings accounts: TFSA, RRSP and FHSA

How do you choose the most tax-efficient savings account for you? This article compares these three investment plans to help you make the right choice.

Comparison of tax-advantaged savings accounts: TFSA, RRSP and FHSA

Which of the following savings accounts is the most advantageous for you?

  • the Tax-Free Savings Account (TFSA)
  • the Registered Retirement Savings Plan (RRSP)
  • and the Tax-Free First Home Savings Account (FHSA)

The answer obviously varies depends on one’s unique situation. Still, it’s important to understand the differences between each plan.

A Registered Retirement Savings Plan (RRSP) is a type of savings account specially designed to help Canadians save for their retirement. It comes with tax advantages that let you save and grow your money now, while deducting your RRSP contributions from your current tax bill. When it’s time to take your money out, you’ll pay taxes on the withdrawal amount, but likely at a much lower rate than what you’d pay today.

Want to know more about RRSP contribution limits? Check out this article:

RRSPs: Know your limits

A Tax-Free Savings Account (TFSA) is a registered investment account that’s designed to help Canadians save money, while holding qualified investments. Canadians with a valid Social Insurance Number (SIN) and who have reached the age of majority (or older), according to their province, can have a TFSA. Any income earned within a TFSA, including interest, dividends and capital gains is tax-free. What’s more, you won’t have to pay tax on any withdrawals you make from a TFSA.

Why open a TFSA? The following article outlines some of the benefits:

TFSA (Tax-Free Savings Account) - A simple way to save

The Tax-Free First Home Savings Account (FHSA) is a registered investment account that allows Canadian residents who have reached the age of majority (or older), according to their province, to contribute up to $40,000 (with an annual contribution limit of $8,000) to buy their first home in Canada. Like an RRSP, contributions are tax-deductible and, like a TFSA, there’s no tax on qualifying withdrawals. 

Curious about this new savings account? This article answers several questions:

The Tax-Free First Home Savings Account – What you need to know

For more, consult the comparison table below:

 

TFSA

RRSP

FHSA

General
Purpose General Savings Retirement savings First home purchase savings
Account opening criteria
Age (minimum) Age of majority Age of majority Age of majority
Canadian residency requirement Yes Yes Yes
Other requirements Valid Social Insurance Number Have earned income/file Canadian tax return Meet definition of first-time home buyer
Account closing criteria
Latest account closing date Until December 31 of the year following the year of death December 31 of year turning age 71 December 31 of the year in which earliest of the following occurs:
(1) Holder turns age 71;
(2) 15 years after account opening; and
(3) year after first qualifying draw made
Tax treatment
Tax-deductible contributions No Yes Yes, unless funds are transferred directly from an RRSP
Investment growth Tax-free Tax-deferred Tax-free (some exceptions apply)
Administration fee deductibility No No No
On death No tax implications to deceased holder or beneficiaries Fair market value of account taxable to deceased holder (some exceptions apply) Fair market value of account taxable to beneficiaries (some exceptions apply)
Contributing funds
Base annual contribution limit  Indexed for inflation each year ($7,000 for 2025) 18% of previous year’s earned income up to RRSP dollar limit ($32,490 for 2025) $8,000
Lifetime contribution limit None None $40,000
Contribution deadline December 31 60 days after year end December 31
Carry-forward unused contribution limit Yes Yes Yes

Carry-forward deadline

Indefinitely December 31 of year turning 71 End of Maximum Participation Period

Carry-forward limit

TFSA contribution room (accumulated) RRSP contribution limit (accumulated) $8,000
Over-contribution penalty 1% per month on excess 1% per month on excess 1% per month on excess
Withdrawing funds
Tax-free withdrawals Yes No, unless through Home Buyers Plan or Lifetime Learning Plan Yes -  if for qualifying first home purchase
Contribution room reinstated on withdrawal Yes, in year following year of withdrawal No No

Need more information? An advisor can help. If you’re not already working with an advisor, this article will help you choose the best one:

Working with an advisor

Information contained in this article is provided for information purposes only. It is not intended to provide or be a substitute for professional, financial, tax, insurance, investment, legal or accounting advice and should not be relied upon in that regard. It also does not constitute a specific offer to buy and/or sell securities. You should always consult your financial advisor or tax specialist before undertaking any of the strategies discussed in this article to ensure that all elements and your personal circumstances are taken into consideration in developing your individual financial plan. Information contained in this article has been compiled from sources believed to be reliable, but no representation or warranty, express or implied, is made with respect to its timeliness or accuracy and SLGI Asset Management Inc. disclaims any responsibility for any loss that may arise as a result of the use of the strategies discussed.

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