TFSA, RRSP or FHSA: Which savings account is best for you?

TFSA, RRSP or FHSA: Which savings account is best for you?

Everyone wants to save and grow their money, but many people aren’t sure how. Fortunately, Canadians have lots of options, including registered accounts, such as the Tax-Free Savings Account (TFSA), the Registered Retirement Savings Plan (RRSP) and the First Home Savings Account (FHSA), which offer tax-efficient strategies to boost your savings.

Before you decide where to put your money, it’s important to understand the differences between each of these registered accounts and how they work.

TFSA vs. RRSP vs. FHSA

The chart below makes it easy to compare TFSA, RRSP and FHSA accounts based on savings goals, tax treatment, contribution limits and other key account features.

  TFSA RRSP FHSA
What is this account for? You can use this account to save and grow your money for any short- and long-term goals. This account is designed for retirement savings, but can also be used to finance education or to save toward your first home.  This account is specifically for first-time homebuyers who are saving to buy or build a house.
What can you save for? This account can be used to save for any financial goal, including a vacation, a new car, education, retirement or buying a home, as well as to hold an emergency fund. This account is primarily used to save for retirement.  This account is intended to be used to save for a home. 
How long can you hold the account for?  You can open a TFSA once you reach the age of majority and use it indefinitely; there’s no time limit. You can open an RRSP if you are under the age of 71. You can contribute to your RRSP until December 31 of the year you turn 71. You can open a FHSA once you reach the age of majority. You can hold it for a maximum of 15 years, or until December 31 of the year you turn 71, whichever is sooner.
What do you need to open this account?  Canadian residency.
A valid Social Insurance Number (SIN).
Have reached the age of majority in your province.		 A valid SIN.
Be under the age of 71.
Have earned income and filed a Canadian tax return.		 Canadian residency.
A valid SIN.
Be between the age of majority in your province and 71.
Be considered a first-time homebuyer, according to Canadian Revenue Agency (CRA) guidelines.
What investments can it hold? Mutual funds.
Exchange-traded funds (ETFs).		 Mutual funds.
Exchange-traded funds (ETFs).		 Mutual funds.
Exchange-traded funds (ETFs).
What are the contribution limits/rules? The CRA sets an annual contribution limit ($7,000 for 2025), and any unused contribution room from previous years carries forward. TFSA contribution room begins to accumulate once you turn 18. For example, if your eligibility began in 2009 and you haven’t yet contributed to a TFSA, your limit for 2025 would be $102,000. Your annual limit can be found in your most recent Notice of Assessment from the CRA, but here’s the math:

Your unused RRSP contribution limit
+
18% of your earned income from the previous year, up to an annual maximum amount determined by CRA ($32,490 for 2025).
+
If you receive employer contributions to a pension or group RRSP, your annual contribution room may be reduced further.		 The annual limit is $8,000, with a lifetime limit of $40,000. Unused contribution room can be carried forward up to $8,000; however, it begins to accumulate only once you open an FHSA.
What happens if you withdraw?  You can withdraw funds at any time completely tax-free, without penalty.

You can recontribute the amount you’ve removed in the same year, but only if you have available contribution room. If you don’t, you’ll have to wait until January 1 of the following year to add the funds back into your account. 		 You can take money out at any time, but that amount will count as taxable income in the year of the withdrawal, with exceptions for the Home Buyers’ Plan (HBP) or Lifelong Learners Plan (LLP).

Any money withdrawn will permanently reduce your total contribution room.		 To make a withdrawal, you must qualify as a first-time homebuyer.

You also need to produce a written agreement to buy or build a qualifying home, which will be acquired or built before October 1 of the year after you make the first withdrawal.

You must claim the property as your principal residence within one year after buying or building it.

If you withdraw funds to be used toward something other than a qualifying home, the amount will be taxed as part of your annual income. 
How is it taxed? Contributions are not tax-deductible, and withdrawals are tax-free. And there is no tax on any investment income earned inside the account.  Contributions are tax-deductible, which can help lower your overall taxable income in the year you invest. Investment income earned grows tax-deferred, meaning withdrawals are taxed as income.  FHSAs enjoy the tax benefits of both TFSAs and RRSPs, with tax-deductible contributions, which can help lower your overall taxable income in the year you invest, and tax-free withdrawals. There is also no tax on any investment income earned inside the account.
Can this account be used with a spouse?  Your spouse cannot contribute directly to your account, but your spouse can give you money to put into your own account. Your spouse cannot contribute directly to your RRSP, but you may consider using a spousal RRSP (SRRSP). With a SRRSP, your spouse is the contributor, and you are the annuitant.  Spouses cannot contribute directly to your account, but your spouse can give you money to put into your own account.
Can you name a beneficiary‍?‍*

*Special rules in Quebec.		 A spouse or common-law partner can be a successor holder, or you can designate anyone as a beneficiary.  A spouse or common-law partner can be a beneficiary, or you can designate a non-spouse or a child/grandchild who is financially dependent as a beneficiary.  A spouse or common-law partner can be a successor holder, or you can designate anyone as a beneficiary.
What happens when you close the account? You can close a TFSA at any time, but check with your institution about any potential closing fees.  The account needs to be “matured” in the year you turn 71. Most investors choose to convert their RRSP into a RRIF, which allows for continued tax-deferred growth with required minimum annual withdrawals. This could be done before age 71. After your first qualifying withdrawal, you must close the account by December 31 of the following year. Unused assets can be transferred to an RRSP or RRIF; otherwise, withdrawals are taxed as income.
Key takeaways

If you’re still wondering which registered savings account is best for you, the answer might be more than one; you can use a combination of TFSAs, RRSPs and/or FHSAs to save toward your various goals. While you can use the account and contribution limits to determine how much you want to put into your registered accounts, the best way to optimize them is to consider your age, your cash-flow needs and your short- and long-term savings goals. If you’re looking for some extra guidance, a financial advisor can help you determine which account is best suited for you and create a plan that’s tailored toward your goals, ensuring you stay on track to reach them.

 

For more information about the different registered savings accounts, you can visit our Investments page to learn more.

The UpsideTM

Sign up to get investing insights from the pros.

Sign up