Happy New Year everyone! This should be a busy time in terms of updates as banks are starting to release its interest rates and I will try to compile as much information as possible.
As well, I placed up a bank review section where people can leave comments about the banks they choose and rate them as well. There are some minor details to flesh out still, but hopefully this can create some great feedback from real people for others to read too.
There is an important point about choosing the bank that you are most comfortable with in opening your new tax free savings account which I heard about today. Generally speaking, like most people I am looking for a bank that will provide the best interest rate and other factors to make sure that I am getting the best return.
As a result, like most people I am susceptible to those flashy ads that some banks are using which indicate that they are offering a very high interest rate. However, it is important to keep in mind that in the fine print most of the banks say that its rates can change at anytime. Example, you could have signed up with a rate that looked like the highest of all the banks only to see it drop in the near future.
Then, you might be thinking that it is better to transfer your money to a different bank. While reading some banking fees though, such as for TD Waterhouse’s TFSA plan, they have an insanely high “$125 for a termination/transfer fee”. Essentially, you could almost be making nothing if you decided to transfer as a result of that fee.
Because of this, it is very important to make sure that the bank you are going to sign up with doesn’t have a history of dropping rates once they feel that they have acquired enough accounts. Don’t just rely on what interest rate they are wiling to offer you now.
One point I was just reading about the tax free savings account coming here in Canada is the possibility of getting penalized if you place too much funds into your account. Essentially, if your limit is $5000 annually contributing $5001 into a TSFA account will mean that $1 will be subject to an interest penalty.
While most banks don’t seem to list the penalty amount that you would have to pay, from the literatures that I have read the interest penalty is 1%. It’s very similar to RRSP’s I guess if you wan to look at it that way. Although, thinking about this I don’t see why a bank can’t just restrict you automatically to make life easier.
The only real way that this might get confusing for people that I can see is how many of the banks will be offering monthly interest calculations to pay TFSA account holders. Therefore, this might confuse some people if they don’t actually keep track of how much they put in but rather just rely on looking at how much is in the account on a monthly basis.
Just looking at the calendar there is only a few weeks left until we get to open a tax fee savings account. With that in mind, I was just trying to think of sources where I would get money to place into the account. Here were my immediate thoughts:
Traditional Savings Account– This one seems like the most logical choice where if you have money in a regular savings account it only makes sense to transfer it to a TSFA account. Considering the banks overall should offer a higher interest rate on top of the fact that what you earned wont be taxed, I can’t see any real reason why you wouldn’t want to transfer it.
Tax Credit Cheques – I usually get one of these after filing my taxes and normally I would just place them into my savings account. Similarly, it seems like the wise thing to do would be to put it into a new TSFA account.
Investment Transfers – The article I was reading the other day about how some firms will be automatically transferring its GIC rates to the new tax free savings account plans is another idea. I remember before when I had GIC’s it was pretty discouraging to see how little you gained once you pull the funds out and claim it as your income. So this could be a great option for some too.
Emergency And Rainy Day Funds – I know many people actually setup an account specifically for emergencies and is entirely separate from their chequing and savings accounts. This never made too much sense to me as you could be earning more by combining it with your other funds. But if one insists and considering most people keep well over $1000 in it, putting it into a TFSA should make sense since you can withdraw the money at any time.
Making Extra Money On the Side – I am definitely going to use this method as well. If I want an additional $5000 a year to save into this account, I’m guessing it’s not enough to just save or cut back on certain things. Instead, I will probably need to find another source of income specifically for it.
If you have any tips or ideas that you will be implementing, feel free to share it as I’m sure it will help everyone too.
I was just reading this article from the London Free Press at http://lfpress.ca/newsstand/Business/BusinessMonday/2008/12/15/7750751-sun.html which talks about how most Canadians are unsure about opening a TFSA account due to the economy. As mentioned on the site, apparently less than 46% of Canadians intend to open an account.
As expected, a lot of the comments from the banks are that everyone should open an account since funds can be withdrawn without the fear of being taxed. Some interesting details I did learn from the article is that some investment firms like the National Bank will be automatically transferring their GIC rate of 4.1% to a TFSA beginning next year.
The article also brought up a good point on how since people may pull out funds whenever they want it can create a lot of short term thinking in managing one’s fund. Good point I thought and it is something that one needs to be disciplined and educated to not do.
While looking at some of the banking sites today I realized that some banks appear to have fees associated with the account. Depending on who you open up the account with, there could be things such as a withdrawal fee.
For example, I noticed with TD Canada allows one withdrawal from your account and then charges $5 a piece afterwards. I guess that is something to look out for as you decide to open up an account.
I’ll try to research more as I am in the midst of setting up a category for each bank and everyone can contribute as well.
Hi everyone,
Thank you for stopping by. As of now I am still setting up taxfreesavingsaccountplan.com and hope to make it a resourceful site for everyone who is interested in a TFSA plan in 2009 in an effort to make and save more of our hard earned dollars.
So sit back and relax and feel free to e-mail me any comments or ideas that you may have about the site.
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