According to the Comparison Chart the new Tax Free accounts seem to give the same or higher interest rates than the High Interest accounts. Assuming the rate issue evens out after an initial period and forgetting the $5000 limit --why would anyone keep money in a High interest account as opposed to the Tax Free accounts?
December 12, 2009
I'm betting the banks will offer higher rates on their Tax Free Savings Accounts because they aren't meant for day-to-day transactions and, while withdrawals are not subject to tax, that affects your contribution limit to your TFSA until the following year. Therefore, the banks have somewhat of a stable, guaranteed deposit base similar to that of a GIC or Term Deposit since you're not as likely to be pulling from it regularly. Rather, you are more likely to contribute to it over time.
Remember, though, for 2009, everyone's contribution limit is $5,000 regardless of how many TFSAs you have at different institutions. For this reason, if you have an HSBC Direct Tax Free Savings Account, I recommend a regular Direct Savings Account to put monies into over and above the $5000. Further, institutions will not be issuing tax receipts (as there is no tax deduction, you just don't pay tax on capital gains or investment income) so it's your responsibility to keep track of your contributions and withdrawals across all your TFSAs. You will, however, receive your contribution limit on your Notice of Assessment from Canada Revenue Agency each year, like you do for RRSPs.
Hope that helps,
Thanks. I am looking at rainy day money for a new roof or maybe a flat screen. Otherwise the money stays put. So the only issue I have seen so far is a $50 fee if I move it from PC to some other institution. Otherwise it seems to pay the same interest as a high interest account at least for the moment. Since I see no prospect of moving to another bank it looks to me like a no brainer to move $5000 into a tax free account. Any other view?
December 12, 2009
Definitely. You've got it now. As long as you don't plan on moving the entire TFSA to another bank, a TFSA is definitely the way to go. In fact, large or special household purchases or a new car are two of the ideal ways in which they (CRA and the banks) recommend a TFSA to be used.
I'm a bit biased as I work for HSBC Bank Canada as a Customer Service Rep., but I'd go with the Direct Tax-Free Savings Account. It's the TFSA version of the Direct Savings Account and you can make surcharge-free withdrawals, deposits and balance inquiries at any BMO Bank of Montreal or Exchange Network (credit unions in B.C., Ontario, the Atlantic provinces and some in Saskatchewan and numerous other banks like National Bank of Canada and Citizens Bank of Canada), in addition to doing all that and more at any HSBC ABM. Plus, there's absolutely no service charges. Just visit, http://www.hsbcdirect.ca.
I have a bit of a different twist to maximize my tax savings through the new TFSA and that is to first shelter my highest interest income, which in inevitably taxed at the highest level through this account and keep my shaorter term savings for future consumer spending in my high interest savings. I've selected to do both at Achieva Financial, where they have among some of the best rates for GICs and Daily Savings and have made opening a new TFSA ultra easy online at http://www.achieva.mb.ca/taxfr.....vings.html