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TFSA - Why Bother Anymore
December 1, 2019
9:01 am
Alexandre
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I used to diligently deposit funds to TFSA, maximizing my contribution annually. Then, putting it to 1 year GIC to get better interest income and still not locking money for too long.
Not interested in stocks.

My GIC is about to mature. My options are:

TFSA Savings at Big Bank - 1% annual interest
TFSA GIC at Big Bank - 2.2%
TFSA Savings at CU - 2.4%
Savings account at Laurentian or B2B - 3.3%

Which means, as long as my income tax rate is less than approximately 30%, I am better off removing funds from TFSA and putting them in regular savings account.
My tax rate is well under 30%.

So, my big "thanks" to Bank of Canada for following worldwide trend of reducing interest rates in otherwise healthy economy.

I regret to inform the Government of Canada that as soon as my TFSA GIC matures, I am becoming one of those who is "unwise not to top up their TFSA."

Perhaps, when interest rates improve, or banks stop offering unfavorable rates to TFSA and RRSP accounts, or it is time for me to apply for OAS/GIS - I might reconsider.

(Note that it is written on December 1, 2019, and dependent on low interest rates of that period) .

December 1, 2019
9:17 am
Selkirk
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Alexandre said

. . .

So, my big "thanks" to Bank of Canada for following worldwide trend of reducing interest rates in otherwise healthy economy.

. . .   

WOW, when did that ^ happen sf-surprised ... did I miss something❓
.

As far as I know, this is still the latest ⬇

___________________________________________________________________________

December 1, 2019
9:50 am
pooreva
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Alexandre said
Which means, as long as my income tax rate is less than approximately 30%, I am better off removing funds from TFSA and putting them in regular savings account.
My tax rate is well under 30%.

Why should I pay parasites even one cent more than I have to??? Are you proud that your tax rate below 30%??? Mine too and I believe I am still overtaxed providing nice life to parasites.
TFSA is still a good choice. You can withdraw AT ANY time and you do not pay any taxes on interest while you debating where to invest all those millions you have...

December 1, 2019
9:53 am
NorthernRaven
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There's a difference between your actual or average tax rate, and your "marginal" rate that you would have paid on your next dollar of taxable income (like GIC interest). At the rates you mention - 3.3% (B2B) vs CU TFSA (2.4%) - the breakeven would be something like a 27% marginal rate. With a very low taxable income in certain provinces, you might get below that, but even on very large GIC amounts the savings aren't ginormous.

While Big5 banks are going to have lousier rates on everything than others, institutions don't have "unfavourable" rates for TFSAs; if anything in the past they would offer a better TFSA rate at times. 3.3% is a freakish return one provider is giving for promotional reasons of their own and may reduce at any time.

Most people will likely come out ahead (to whatever degree) with the TFSA.

December 1, 2019
10:05 am
GICinvestor
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Alexandre said
I used to diligently deposit funds to TFSA, maximizing my contribution annually. Then, putting it to 1 year GIC to get better interest income and still not locking money for too long.
Not interested in stocks.

My GIC is about to mature. My options are:

TFSA Savings at Big Bank - 1% annual interest
TFSA GIC at Big Bank - 2.2%
TFSA Savings at CU - 2.4%
Savings account at Laurentian or B2B - 3.3%

Which means, as long as my income tax rate is less than approximately 30%, I am better off removing funds from TFSA and putting them in regular savings account.
My tax rate is well under 30%.

So, my big "thanks" to Bank of Canada for following worldwide trend of reducing interest rates in otherwise healthy economy.

I regret to inform the Government of Canada that as soon as my TFSA GIC matures, I am becoming one of those who is "unwise not to top up their TFSA."

Perhaps, when interest rates improve, or banks stop offering unfavorable rates to TFSA and RRSP accounts, or it is time for me to apply for OAS/GIS - I might reconsider.

(Note that it is written on December 1, 2019, and dependent on low interest rates of that period) .  

Think about the future. Think about retirement. Think about showing the least amount of income as possible to benefit from paying less income tax and being eligible for low income based benefits. Think twice about contributing to RRSP vs TFSA.

December 1, 2019
12:31 pm
Bill
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I agree, using the puzzlingly stratospheric 3.3% current rate offered by Laurentian as a comparable in a TFSA analysis doesn't make much sense. It could be changed any time and indeed might go very low, whereas TFSAs are generally for long-term saving/investing. Though I wouldn't use the fact I don't want to pay "parasites" (who are they?) a penny more than necessary as a factor either in deciding my strategy. Personally, today I withdrew all my TFSA money, taking a chance & hoping there might be some promos somewhere in the first couple of months of 2020.

December 1, 2019
1:07 pm
Norman1
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There's also no need to top up one's TFSA on January 2. The new TFSA contribution room won't evapourate if one doesn't take advantage of it right away.

If it is better to put the money in an LBC Digital HISA earning 3.3% outside a TFSA, then do so. Should the LBC Digital HISA rate fall, one can re-evaluate and can move the money into a TFSA then.

December 1, 2019
2:06 pm
Selkirk
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GICinvestor said

Think about the future. Think about retirement. Think about showing the least amount of income as possible to benefit from paying less income tax and being eligible for low income based benefits. Think twice about contributing to RRSP vs TFSA.  

Good advice ⬆

But sadly ... some people can't even think past the weekend. sf-confused

December 2, 2019
10:09 am
Koogie
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Soo... you artificially restrict the number of things you are willing to invest in and then are mad at other people and organisations what you are not getting the returns that you want ?

Methinks the problem is not the TFSA.

Ultra safe investing will always produce poor returns. That's how the market works.

Tell yourself it is a T.F.I(nvestment).A. instead and see if that changes your thinking.

December 2, 2019
11:01 am
GICinvestor
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Bill said
I agree, using the puzzlingly stratospheric 3.3% current rate offered by Laurentian as a comparable in a TFSA analysis doesn't make much sense. It could be changed any time and indeed might go very low, whereas TFSAs are generally for long-term saving/investing. Though I wouldn't use the fact I don't want to pay "parasites" (who are they?) a penny more than necessary as a factor either in deciding my strategy. Personally, today I withdrew all my TFSA money, taking a chance & hoping there might be some promos somewhere in the first couple of months of 2020.  

That’s interesting. You withdrew ALL TFSA money...or all that had matured, assuming the funds were in GICS?

While in only investing in GICs, I go for every percentage point that is available.

And OP. The TFSA is a “tax shelter”.
Ie. Invest $1000 in a TFSA at 3.3% and receive $33.00 a year and more if compounded over 1-5 years.
OR
In a RRSP or non registered a $1000 will get you $33.00 a year minus 30% income tax which yields you $33.00 - $9.90 = $23.10 or 2.31%.

The RRSP tax savings for the year of deposit will soon be forgotten as it was probably squandered away.

So the true 3.3% investment will improve your net yield along with your lower yield after tax 2.31% yield by blending your investment strategies.

And if you are retired and can remain in the lowest tax bracket and don’t need your RRSP funds to live on, you are a fool if you don’t withdraw your RRSP at 10% tax withhold and invest in TFSA.

December 2, 2019
11:34 am
Bill
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Sorry, yes, all that was liquid, including a recently matured GIC, was withdrawn.

Re the TFSA vs RRSP comparison you make, probably better if your analysis assumed the RRSP contribution tax refund was put into a TFSA instead of squandered, clearly one option is better than the other if only one includes squandered money.

And if you're in the lowest tax bracket you will pay tax on RRSP withdrawals on that lowest bracket tax rate, not 10%.

All things being equal, RRSPs are superior to TFSAs if you contribute (& deduct) when you are in high tax brackets and withdraw when you're in lower tax brackets, generally.

December 2, 2019
11:57 am
GICinvestor
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Sorry, yes, all that was liquid, including a recently matured GIC, was withdrawn.

Wow....so no laddering?

Re the TFSA vs RRSP comparison you make, probably better if your analysis assumed the RRSP contribution tax refund was put into a TFSA instead of squandered, clearly one option is better than the other if only one includes squandered money.

Yes I agree. You are obviously much younger than I BUT you do see the value in your investment strategy. I am talking from my RRSP experiences where there was no TFSA option and I probably didn’t invest the tax return from the RRSP contribution. I can only vaguely recollect of using the funds for a mandatory summer family holiday OR I would have put funds against our mortgage. I am just trying to jolt the OP into thinking about better options using TFSA.

And if you're in the lowest tax bracket you will pay tax on RRSP withdrawals on that lowest bracket tax rate, not 10%.
All things being equal, RRSPs are superior to TFSAs if you contribute (& deduct) when you are in high tax brackets and withdraw when you're in lower tax brackets, generally.

Yes I know. Once again for jolt factor. I have a pension with tax taken away, no tax from CPP or OAS. Since I have lost 30% of pension I put away the difference of tax from pension now vs the higher rate of my pension. And every GIC interest payment I set 20% aside and the RRIF withdrawals that have a withhold of 10%. Last year I had money left from the money I had set aside for taxes. And you are correct I pay taxes at the lowest tax rate for all income, including RRIF.....so I feel lucky that I don’t have to cough up more money over the 10% withhold for RRIF.

December 2, 2019
4:31 pm
Alexandre
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GICinvestor said

And OP. The TFSA is a “tax shelter”.
Ie. Invest $1000 in a TFSA at 3.3% and receive $33.00 a year and more if compounded over 1-5 years.

I would love to. Give me TFSA with 3.3% annual interest and I'll pour all money back to TFSA, as much as government allows me.

Too bad, the best I can do today with TFSA is about 2.3% and with regular savings - 3.3%.

Assuming 70,000 max contribution to TFSA (rounded), one year could give me a difference of $700 if 3.3% interest stays. Giving 20% back to tax man, will leave me with $560.
I paid about that much for a new smartphone this year, so it comes free. sf-smile

December 2, 2019
5:04 pm
Bill
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No, I don't ladder GICs, I don't feel comfy locking money up, one-year GIC is pretty much my limit. For years, now that I have online access to all these institutions with always someone having a promo of some kind, I tend to move it around wherever's a good deal at the moment.

Not sure about that being much younger part, though still several years before I need a RRIF, but I think using your tax refund to pay off part of a mortgage is a good investment, certainly no squandering there.

December 3, 2019
8:20 am
butterflycharm
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Alexandre said
I used to diligently deposit funds to TFSA, maximizing my contribution annually. Then, putting it to 1 year GIC to get better interest income and still not locking money for too long.
Not interested in stocks.

My GIC is about to mature. My options are:

TFSA Savings at Big Bank - 1% annual interest
TFSA GIC at Big Bank - 2.2%
TFSA Savings at CU - 2.4%
Savings account at Laurentian or B2B - 3.3%

Which means, as long as my income tax rate is less than approximately 30%, I am better off removing funds from TFSA and putting them in regular savings account.
My tax rate is well under 30%.

So, my big "thanks" to Bank of Canada for following worldwide trend of reducing interest rates in otherwise healthy economy.

I regret to inform the Government of Canada that as soon as my TFSA GIC matures, I am becoming one of those who is "unwise not to top up their TFSA."

Perhaps, when interest rates improve, or banks stop offering unfavorable rates to TFSA and RRSP accounts, or it is time for me to apply for OAS/GIS - I might reconsider.

(Note that it is written on December 1, 2019, and dependent on low interest rates of that period) .  

Savings account at Laurentian or B2B - 3.3% <<< Can you please link this? I don't see no 3.3% anywhere.

Thanks,

December 3, 2019
9:17 am
Vatox
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butterflycharm said

Savings account at Laurentian or B2B - 3.3% <<< Can you please link this? I don't see no 3.3% anywhere.

Thanks,  

https://www.highinterestsavings.ca/chart/

December 3, 2019
9:22 am
GICinvestor
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Vatox said

https://www.highinterestsavings.ca/chart/  

I went to the B2B site.....the 5 year rate is NOT 3.3%. I wanted to give the link to butterflycharm. Perhaps the rate here is incorrect?

December 3, 2019
1:00 pm
GICinvestor
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Oops sorry. I was looking for a 3.3% GIC. I had no idea someone would have that good of a rate for a savings account.

December 3, 2019
4:13 pm
Selkirk
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GICinvestor said
Oops sorry. I was looking for a 3.3% GIC. I had no idea someone would have that good of a rate for a savings account.  

It's a rate-chasers Dream ❤❤❗

Jump while you can ... but it won't last long sf-laugh

December 3, 2019
5:55 pm
chishoik
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Yeesh I bet many pining for the old days of high interest rates from the banks were all too happy to see dirt cheap mortgages and housing demand skyrocket the price of their home. You can't have your cake and eat it too.

Also huge yikes at all this "parasite" talk. What is this, 1939 Berlin? I don't view you as a parasite when my I pay for your healthcare, nor do I view my neighbour that worked all her life and gets OAS to help pay her bills as a parasite... Just a weird disappointing thread all around here friends.

If you're dissatisfied with the bank payouts, there's nothing stopping you from purchasing a junk bond ETF in a brokerage TFSA. XHY has an average coupon of 6% right now.

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