stub TFSA or RRSP – Which Is Right For The Canadian Investor? -
Connect with us

Investing 101

TFSA or RRSP – Which Is Right For The Canadian Investor?

Updated on is not an investment advisor, and this does not constitute investment advice, financial advice, or trading advice. does not recommend that any security should be bought, sold, or held by you. Conduct your own due diligence and consult a financial advisor before making any investment decisions.

The Canadian investor has two potent tools at their disposal – the Tax-Free Savings Account (TFSA) and the Registered Retirement Savings Plan (RRSP). While both are designed to encourage savings, they cater to different financial needs and offer unique tax advantages. Making an informed choice between TFSA and RRSP can significantly impact an investor's financial health and long-term goals.

Understanding a Tax-Free Savings Account (TFSA):

A TFSA allows Canadians to earn tax-free investment income. Contributions are made with after-tax dollars, but withdrawals, including the gains, are tax-free.


  • Flexibility: TFSAs offer flexibility as you can withdraw funds at any time without a tax penalty, making it suitable for short-term and long-term goals.
  • Tax-free Growth: Investment growth within a TFSA is tax-free, which can be advantageous especially for those in higher tax brackets.
  • No Age Limit: Unlike RRSPs, TFSAs have no age limit for contributions, allowing for lifelong savings.


  • Lower Contribution Limits: TFSAs have lower annual contribution limits compared to RRSPs, which might restrict the saving potential for some investors.
  • No Tax Deduction: Contributions are not tax-deductible, so they don’t provide an immediate tax benefit.

Understanding a Registered Retirement Savings Plan (RRSP):

RRSP is a retirement savings plan that allows Canadian investors to save for their retirement on a tax-sheltered basis.


  • Tax Deductible Contributions: Contributions to an RRSP are tax-deductible, reducing an investor’s taxable income for the year.
  • Higher Contribution Limits: RRSPs have higher annual contribution limits compared to TFSAs, enabling individuals to save more.
  • Tax-Deferred Growth: Investment growth is tax-deferred until withdrawal, which is typically during retirement when one might be in a lower tax bracket.


  • Less Flexibility: RRSPs are less flexible as withdrawals before retirement age are subject to tax penalties.
  • Age Restriction: RRSPs have an age limit for contributions, which is 71 years of age.

Putting Contributions to Work

It is important to recognize that contributing to these types of savings accounts is not enough, as they are meant to be used as ‘tax-advantaged wrappers' for further investment.  This means that, in either case, contributed funds can then be invested in, but not limited to, the following.

  • Cash
  • Equities / Stocks
  • Fixed Income Securities
  • Mutual Funds
  • Exchange-Traded Funds (ETFs)
  • Real Estate Investment Trusts (REITs)

The ability to invest in a diversified portfolio within either a TFSA or RRSP allows Canadian investors to tailor their investment strategy to meet their individual financial goals and risk tolerance. Moreover, the tax advantages of TFSAs and RRSPs can significantly enhance the long-term growth potential of investments held within these accounts.

It's advisable to consult with a financial adviser to understand the investment options and strategies that would be most suitable for your individual circumstances within the framework of TFSAs and RRSPs.

Making The Right Choice:

The choice between a TFSA and an RRSP largely depends on an individual’s financial circumstances and goals.

  • Short to Medium-term Goals: For short to medium-term financial goals like saving for a vacation, a home, or an emergency fund, a TFSA is often a better choice due to its flexibility and tax-free withdrawals.
  • Retirement Savings: If saving for retirement is the primary goal, an RRSP could be more advantageous due to the tax-deductible contributions and potentially being in a lower tax bracket upon withdrawal.
  • Tax Bracket Consideration: If an individual expects to be in a higher tax bracket in retirement, a TFSA may be a better choice. Conversely, if they expect to be in a lower tax bracket in retirement, an RRSP could be more beneficial.

In conclusion, both TFSA and RRSP are powerful saving tools for Canadian investors, each with its own set of advantages and disadvantages. It's vital to evaluate personal financial circumstances, consult with a financial advisor, and make an informed decision to align with one's financial objectives and maximize the benefits these accounts offer.

For Canadian investors interested in kick-starting their retirement savings journey, one of the best options around to do so is Questrade – Canada's largest online brokerage platform.

For a deeper dive into investment options, including RRSPs, and a comparison with other retirement saving instruments, visit to explore a wealth of resources available to Canadian investors.

Daniel is a big proponent of how blockchain will eventually disrupt big finance. He breathes technology and lives to try new gadgets.