Breaking down common savings products

Do you have a strong grasp on the common savings products available to Canadians? Whether you’re saving up for retirement, a home purchase, or you’re looking to increase your wealth, it’s important to understand how different products can serve you best. Here in Canada, three of the most common products include RRSPs, TFSAs, and FHSAs. Here’s a breakdown of what each one of these accounts are, and what they’re used for.

RRSPs

RRSPs, or registered retirement savings plans, are a government-backed program designed to help Canadians prepare for retirement. You can contribute money to this account that you can tuck away for years, until you want to take it out later in life. Your contributions are tax deductible, which means you don’t have to include them as part of your taxable income report. 

RRSPs have many benefits. As mentioned above, the money you put into your RRSP can grow tax-free until you decide to withdraw it. This means your taxable income will be lower during the years you contribute to your account. When you withdraw these savings, you will have to pay taxes on them at that point. However, the good news is if you are retired by then, your income will be much lower. This means you will pay lower taxes on your withdrawals because you will fall into a lower tax bracket. Keep in mind RRSPs have an annual contribution limit! This year it is $31,560.

TFSAs

A TFSA is a tax-free savings account. This account helps you grow your savings like an RRSP, but in a slightly different way. Unlike RRSPs, TFSA contributions are not tax-deductible. However, any interest you earn is tax-free, and you do not have to pay taxes when you withdraw these savings. You can use a TFSA for long-term or short-term savings goals, because you can withdraw money any time without having to report it as income or pay taxes on it. 

TFSAs are handy for people who want to save for all kinds of future expenses. This could include a major purchase, creating an emergency fund, or padding your retirement savings. Just like with RRSPs, these accounts have annual contribution limits as well. In 2024, the limit is $7000.

FHSAs

The first home savings account is one of the newer products introduced by the government. As the name suggests, it was created to help Canadians buy their first home in an environment where homeownership has become increasingly expensive. The great part about this account is it combines the best aspects of RRSPs and TFSAs. Contributions are tax-deductible, and withdrawals are tax-free. This allows you to grow your savings for your first home purchase without worrying about any tax penalties. 

FHSAs are exclusively for first-time home buyers, and have an annual contribution limit of $8000. They also have a lifetime contribution limit of $40,000. However, this is a great way to help build up a down payment for a home and enter the market as a new buyer.

All of these products come with their own sets of pros and cons, and target different individuals. We recommend chatting with a professional about each of these accounts if you are interested in investing and saving for the future. If homeownership is one of your goals, make sure you reach out to a mortgage broker! We can help you get set up with the right products and put you on the path towards buying a home of your own. In a market where purchasing a property can be tricky, we are here to reduce the stress!

If you have any questions about your mortgage, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.