Should You Save Your Money In A Savings Account of A TFSA?

Saving, in my humble opinion, is a very important goal to have. If you haven’t made this a goal so far, 2020 is the year to start. Most people want to start saving but they don’t know where to start. Should they jump into the stock market? Should they hoard their money in a savings account? There are two important questions to ask yourself when deciding what to do with your disposable income: Do you have an Emergency Fund? What are your long-term financial goals?

If your answer to the first question is NO, then you’ll benefit from starting with a savings account. This will help you build a fund for emergencies. If you answered YES, then we can start looking at question number 2. Let's break down the difference between a traditional Savings Account and A Tax-Free Savings Account.

What’s The Difference?

I’m not going to bore you with the financial jargon, nobody has time for that so let get right to the Tea. A savings account, even a High-Interest Savings Account is just that. It’s somewhere you put away your money for a rainy day. Some would even call it an Emergency Savings Fund (ESF) and this is super important. This is goal number one. Once you have saved enough money there, it’s time to start thinking about plans for your money which is where a TFSA comes in where you can actually start to grow your money exponentially.

Why a TFSA?

Well, Karen, I’m glad you asked.

The best advice I could give you is knowing how to not only save your money but grow it. Saving your money in a savings account is a great way to keep yourself prepared for emergencies. But once you have enough money to get you through at least 3-6 months of expenses, it’s time to let your money work for you.

See 11 Money Milestones To Achieve In Your 20s

Keeping a large amount of cash in a High-Interest Savings Account that you’re only gaining 1.5% interest on isn’t really helping you in the long run. Your money is being used by the bank to make loans to other people at 12% interest and make a huge profit on your money while you’re gaining only 1.5% for your contribution. It would be much more advantageous to put your disposable money in a Tax-Free Savings Account that you can gain 7% profit on (tax-free) for doing the exact same thing you were doing before, leaving it in a savings account. Many people are confused with the name TFSA and I believe it should really be called a TFIA (Tax-Free Investment Account) because that is truly what it is. An investment. And yes there is more risk with a TFSA because you’re investing in the market but that is the way to truly generate wealth. Let your money work for you.

Start investing your money today with Wealthsimple and turn that 7% interest on your disposable money into $1M.