Now that you are convinced that it is a good idea to open a tax free savings account the next logical questions that come to mind are “Where do I open the TFSA?  How do I choose from the options available in the market?”

It is not an overstatement to suggest that there are indeed many choices available to Canadian citizens.  Banks, financial institutions, and brokerage firms are vying to get the biggest share of the savings account market and are offering many incentives to consumers.

Click here to find out what some of the leading banks in Canada are offering.

What everyone already knows is that a Tax free savings account allows the account holder to contribute $5000 per annum.  They can make tax free withdrawals and earn a tax free income on this account.  What everyone does not know is the fine print regarding cost of opening and maintaining such accounts and the accruing benefits.  There are a few points which should be considered before choosing a bank.

·      Beware of Bank Fees

There is no charge whatsoever for opening a TFSA account.  Each bank charges an administration fee and a withdrawal fee.  Find out what are the bank charges and the fee structure in the banks of your choice.  Some banks and brokerage firms are allowing a flexible fee structure for their existing clients.  For example BMO InvestorLine is expected to charge an annual fee of $50 and a withdrawal fee of $25.  An exception will be made for investors who have $100K or more already invested in InvestorLine assets.  Many brokerage firms are expected to offer competitive fee structures.

·        The Market Favours ‘Savers’

Choose a bank which is convenient for you.  Try to open a TFSA account with your current bank to avoid maintaining too many bank accounts and the related paperwork.  For example ING Direct is running a special for TFSA account holders.  According to the information posted on the website funds deposited in a promotional Tax-Free Investment Savings Account opened between October 4 and December 31 will be transferred to a new Tax-Free Savings Account starting January 1, 2009.  The bank has recently announced that the consumer can hold cash or GICs in your TFSA account and is also offering Mutual Funds in TFSAs.

·        Long-Term Financial Vision

Every savings option will have some pluses and some minuses for you.  Before choosing your bank think about why you want to save: do you want to save for your child’s education, for your retirement, or for emergency purposes?  Are you planning to buy a home? How much do you expect to save and gain in the long term?  A TFSA could be a better option than the Home Buyer’s Plan (HBP) for first time home buyers.  A TFSA may not be a good option if you are already saving in the Registered Education Savings Plan (RESP) for your child’s education.  A TFSA is definitely a great option for saving for future contingencies.

Choosing the best tax free savings account bank can be a challenging task but if you know your financial goals clearly and have adequate information about the fee structure it is as easy as a pie!  Happy Thanksgiving!  Give yourself the gift of a TFSA account for a secure future.

This entry was posted on Monday, June 22nd, 2009 at 8:18 am and is filed under Advice. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.