Introduced in 2009 by Federal Government to encourage Canadians to save money to meet their financial goals. TFSA allows all Canadian residents, age 18 and older, can contribute up to $ 6500 annually in 2023, bringing the cumulative contribution room to $88,000 since 2009. The beauty of this investment vehicle is : no tax on earnings, no penalties for withdrawals whenever you need money and unused contribution room can be carried over in future years.
Many people use low banking interest rate product like GIC which offers as low as 0.6 % for one year term with one of the biggest bank in Canada. With the consumer price index of 4.8 per cent in the final month of 2021, our hard-earned money is losing its purchasing power! There are better options to beat the inflation!
The advantage to invest is that money can grow and compound over years without being taxed. For example, assuming you have invested TFSA in the investment like segregate fund and the rate of return is 5% per year vs. 2% for 5 year term GIC bank rate, given the same initial principal of $ 10,000 invested and after 5 years , you will have this amount: $11,040 with 2% GIC rate, and $12,762 with 5% rate of return. However, all investments have inherited risk due to market fluctuation. Therefore, it is important to diversify your investments to achieve maximum growth with peace of mind.
Ask Ria more about why invest in a segregated fund and how!