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“How much does your TFSA earn?”

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**Common Question: “What’s the Return on Your TFSA?” Here’s How to Avoid the Trap.**

The TFSA Has No Interest Rate: What You Put in It Determines What It Earns

It’s common to hear, in discussions with clients:

“My TFSA isn’t earning much… what’s the rate this year?”

Or even:

“I have a TFSA at the bank, but the rate isn’t very good.”

This type of comment reveals a common misunderstanding about the Tax-Free Savings Account (TFSA). Many people think the TFSA comes with a set interest rate — as if it were a fixed-rate savings product. However, it’s not the TFSA itself that generates returns — it’s the investment you choose to hold within it.

The TFSA Is a Wrapper, Not a Product

A TFSA is not a guaranteed investment certificate (GIC) or an interest-bearing savings account. It’s what’s called a tax shelter. In other words, the government gives you a container in which you can hold almost any type of investment: stocks, exchange-traded funds (ETFs), bonds, certificates, cash, and more. What sets the TFSA apart isn’t the type of investment, but the tax treatment — the investment income (interest, dividends, capital gains) earned inside the TFSA is not taxable.

So, if you invest your TFSA in a bond fund, you’ll get the typical return of that fund. If you invest it in stocks or an index ETF, you’ll get the return associated with those securities. If you leave the money in a savings account earning 1.75%, you’ll earn… 1.75%. It’s not the TFSA that earns 1.75% — it’s the investment you chose to put inside it.

Misusing It = A Missed Opportunity

This distinction is crucial. If you leave $40,000 in a TFSA earning 1.75%, you might feel like your money is “working,” when in reality, you’re missing an opportunity to fully use the account’s potential. The TFSA is an ideal tool for holding investments that generate significant growth or taxable income — because everything earned in this account is sheltered from tax, both while invested and upon withdrawal.

A TFSA invested in Canadian dividend-paying stocks or growth-oriented funds can save you thousands of dollars in taxes over the long term. Conversely, a TFSA used merely as a savings account is often underutilized.

The Advisor’s Role: Clarify and Optimize

It’s the advisor’s responsibility to explain this reality clearly. When you ask “how much does a TFSA earn?”, the right answer is: it depends on what you’ve put in it. There isn’t a fixed rate tied to the TFSA itself, but rather an investment strategy to be defined according to your investor profile, time horizon, and goals.

It’s also possible — and recommended — to diversify your investments within the TFSA, just as you would in an RRSP or a non-registered account. You can include a more dynamic portion (e.g., global equity funds) and a more conservative portion (e.g., bonds or GICs), depending on your needs.

Conclusion

The TFSA is not an investment product with an interest rate — it’s a tax structure that can hold a variety of investments. Its advantage is tax-related, but its return depends entirely on the choices you make within it. If you treat your TFSA as just a savings account, you severely limit its potential. If you understand it as a long-term growth tool, you transform a simple container into a true engine of financial freedom.

Sources :

  • Autorité des marchés financiers – “What Is a TFSA?”
    https://lautorite.qc.ca/grand-public/investissements/vehicules-dinvestissement/celi
  • Canada Revenue Agency – “Tax-Free Savings Account (TFSA)”
    https://www.canada.ca/fr/agence-revenu/services/impot/particuliers/sujets/comptes-epargne/comptes-epargne-libre-impot.htm
  • National Bank – “Understanding the TFSA: What It Is and What It Isn’t”
    https://www.bnc.ca/conseils/finances-personnelles/placements/comprendre-le-celi.html