TAX Free vs Hi Interest. | Tax Free Savings Accounts | Discussion forum

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,
Doug

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.

Cheers,
Doug