What is Savings Account?
Wikipedia describes savings accounts as accounts maintained by private individuals and retail financial institutions that pay interest but cannot be used directly as money in the narrow sense of a medium of exchange.
These accounts allow clients to set aside a portion of their liquid assets while earning a monetary return. The other major types of deposit account are transactional or checking account, money market account, and time deposit.
This article takes up the following subject matter:
- Tax-free savings account
- Guidelines for the Tax-free savings account
- High Interest Savings Account
What is Tax-free Savings Account?
The Tax-Free Savings Account (TFSA) allows Canadians, age 18 and over, to set money aside tax-free throughout their lifetime. You can contribute up to $5,000 every calendar year. All income earned and withdrawals from a TFSA are generally tax-free. The TFSA does not impact federal benefits and credits. It is referred to as a great way of saving for short and long-term goals.
It is a flexible, registered general-purpose savings vehicle that allows Canadians to earn tax-free investment income to more easily meet lifetime savings needs. It complements existing registered savings plans like the Registered Retirement Savings Plans (RRSP) and the Registered Education Savings Plans (RESP).
What are the policies regarding the Tax-Free Savings Account?
The following guidelines have been formulated in connection with TFSA:
- Canadian residents age 18 or older can contribute up to $5,000 annually to this account.
- Investment income earned in a TFSA is tax-free.
- Withdrawals are tax-free.
- Unused contributions are carried forward and accumulate in the years to come.
- Full amount of withdrawals can be put back into the TFSA in future years. Contributions in the same year may result in an over-contribution amount which would be subject to a penalty tax.
- You can choose from a wide range of investment options such as mutual funds, guaranteed investment certificates and bonds.
- Contributions are not tax-deductible.
- Neither income earned within a TFSA nor withdrawals from it affect eligibility for federal income-tested benefits and credits, such as Old Age Security, the Guaranteed Income Supplement, and the Canada Child Tax Benefit.
- Funds can be given to a spouse or common-law partner for them to invest in their TFSA.
- TFSA assets can generally be transferred to a spouse or common-law partner upon death.
What are High-Interest Savings Accounts?
The high interest savings accounts can take many different forms. However, one of its unique characteristics is that these share high interest rates. These accounts are not meant to replace the regular daily bank account but supplement them and offer a safe and accessible place to keep your money.
The following are its features:
- High Interest - These accounts earn a lot more interest than the usual bank accounts.
- Accessibility - Your money is locked away for a set time (from 90 days to 5 years). With High Interest Savings Accounts, you can access your money whenever you want. On the other hand, short-term accounts have very low interest rates.
- Invest Small Sums - Buying stock or mutual funds are only profitable when you're investing a lot of money for a long time. This is mainly because of relatively higher fees (29$ to buy stock, 29$ to sell stock).
- Safety - All of these banks are insured, meaning that this money is perfectly safe. The interest rate may go down (although it's sort of at rock bottom right now) but you will never lose any money.
Open the Right Account
You have to open the account that suits your needs. It can be a savings account or high-interest account but the bottom line is your financial capacity and need for cash as well as the savings factor.