Canadian High Interest Savings Bank Accounts

Thanks for the clarification, Peter!

I wondered that myself but I recently withdrew my TFSA funds from an institution on Dec. 17th, 2010, and it appeared as though the full amount was treated as a withdrawal and reported to CRA (including the interest earned over the years).

So, yes you may re-contribute, in the following year if you've already used your TFSA allotment for the year):

Any withdrawals from the prior year, including accrued interest.

Hope this helps, Suzy!

Cheers,
Doug

Yeah, I had the same thought, kanaka. It's a good thing, too, since it is technically a "withdrawal" and you did earn that room. Unlike RRSPs when you withdraw from them, you do get your full contribution back in the subsequent year.

That being said, I am still absolutely a fan of RRSPs (provided you'll have a lower income when you retire than when you contributed), namely for the delay of tax payment and resulting income tax refund which I would encourage people to reinvest in their RRSP or TFSA next year.

Cheers,
Doug

Well, I just turned 28 this month, so while I feel "old", I'm sure from the sounds of your post, you do not consider that old.

The problem I have with the TFSA is I am not sure the best use of it yet. Should I use it namely for high-interest savings accounts and GICs which earn comparably smaller returns than other investment options but are principal protected? Interest income is taxed the highest, when compared to capital gains, so that's one factor further guiding me towards a TFSA for this type of savings. However, you may achieve more benefit from the growth of a TFSA by putting something with capital-appreciation potential in a TFSA (i.e., stocks). The downside of that is, if the stock tanks, if you withdraw from your TFSA when it is less than you paid for it, you lose contribution room and not only that, can't use it as a capital loss. I'm leaning towards using a TFSA not for high-interest savings accounts (because the rates are too low) nor for stocks (mainly because the capital loss advantage is lost and the dividend tax credit is lost), but instead coming down the middle and using it for slightly higher-yielding, long-term GICs with maturities of at least 5 years. My portfolio might be structured like this:

Liquid cash – high interest savings account(s) – non-registered
Small stock portfolio – non-registered
Long-term GICs/Term Deposits – TFSA(s)
Mutual funds – RRSPs and Defined Contribution Pension Plan

What do you think?

On that note, know of anyone offering 5-year GICs with earning greater than 3.5%?

Cheers,
Doug