Financial Fundamentals (Pt. 5) Saving - How & Where?
Once you’ve identified what you want to be saving for, you just start doing it right? While saving is better than not saving, certain accounts can give you some extra bang for your buck. I’m not going to get into specific accounts with institutions, as that list would be quite long and offerings change frequently. What I will touch on is the types of accounts you want to look at and what makes sense for you based on your various goals. Some things you want to consider are: how quickly you need to access cash, what types of things can be held in an account, and the tax impact of contributing or withdrawing.
Short Term Goals
For your day to day living and paying bills (and paying off debt) a simple chequing account is all you need. It’s highly liquid, and since these typically offer no (or very low) interest rates there’s not much to worry about in terms of tax impact. You can only hold one thing - cash, but since this is for your purchases and bill payments that’s all you need.
Your emergency fund will likely change over time, but when you are first building it up you want to make sure that this is also highly liquid and you don’t want to expose the funds to market fluctuations. However, since you don’t know if/when you will need the cash, if you can get some interest on your savings that’s a bonus. Often emergency funds will utilize a high-interest savings account (as we’ve seen from 2020-2024 interest rates can range from the non-existent to the very attractive), but the more important goal is ensuring no downside risk for your emergency fund). I would tend to avoid GIC’s for this, as they may be locked in and since you can’t predict when you will need the cash, flexibility is key.
An exception here is once your portfolio is built up, it may be less important to have your emergency fund in cash. Once you have enough of a base that some fluctuation in value won’t impact your ability to absorb an unexpected expense you could consider using your TFSA as you emergency account. While this level will be different for everyone, while you are getting started it’s better to err on the side of caution and stick with cash.
Medium Term Goals
While some things, like paying off student loans or taking out some insurance would come out of your every day account, most of your goals that are a little more long term in nature can benefit from being invested in something other than cash. If you are saving for a down payment market growth can help get you to your down payment goal faster (and fight off inflation eating into your savings).
For items like this, I like to use a TFSA (or if you are specifically saving for a first home, an FHSA). I’ve talked about how awesome TFSA’s are before, and the flexibility when saving is just one more reason why I love them. You get tax free growth, don’t have to worry about paying taxes when you make a withdrawal, and you get the contribution room back in the next year to start saving for your next goal. If you are nearing retirement, they are still great as withdrawals from them don’t count as income for benefits that are means tested. Unless you have a specific reason why a TFSA doesn’t make sense for you (such as you are a US citizen) I think once you have your emergency fund, a TFSA is the next account everyone should open up.
The RRSP also has a home-buyer plan, where you can withdraw $60K for your down payment. However, you have a set repayment plan (15 years, beginning in the second year after your withdrawal). If you miss a repayment, the amount you missed is considered RRSP income in the year it was missed. Conversely, someone who was over 18 in 2009 and has lived continuously in Canada since then has $102,000 in TFSA contribution room as of 2025, can withdraw all of it (plus their growth) if needed and recontribute whenever they are able, being mindful of recontribution rules in the year of withdrawal. While the Home Buyers Plan with your RRSP can definitely play a role (particularly if you can’t meet your full down payment with your TFSA assets), the added flexibility of the TFSA makes it my account of choice for goals like this.
One exception to this is if you are saving for a kids education.
There is a particular account for this, a Registered Education Savings Plan (RESP) that should be your vehicle to save for post secondary expenses. Why an RESP over a TFSA? Well, neither of them let you reduce your income based on your contributions, and both will allow for tax sheltered growth while in the plan. However, in the RESP your first $2,500 in annual contributions incurs a 20% match from the federal government in the form of a Child’s Education Savings Grant, up to a lifetime CESG allowance of $7,200. There are some additional payments available to lower income earners as well. In addition to getting free money from the government to help save for post-secondary education, you can set up a family RESP so that if you have more than one child, they can all share in the same pot of funds - so if one child wants to do a 2 year program but another wants to go to medical school, you have flexibility to share amongst everyone. I will get into more detail in another post about the details of RESP’s and common pitfalls to avoid, but for now I will just say if you have a kid and you want to help pay for their education, an RESP is the way to go.
The only downside to these accounts is that there are contribution limits to them - if you’ve filled up your TFSA and RESP any further savings for your flexible goals should be allocated to a non-registered account, or for your home buying needs, an FHSA or RRSP. A non-registered account is a simple investment account that has no limits on how much you can put in, but gives you no tax sheltering - any dividends, interest income, or capital gains are taxable in the year that they are incurred. You can hold these accounts on your own, as a joint account with another account holder, and with or without the ability to take on leverage. Which option is the best for you will depend on your situation, and is a conversation worth having with your Financial Advisor.
Long Term Goals
Most people are familiar with using an RRSP to save for retirement, it’s right there in the name! This account encourages saving for your retirement by allowing you to reduce your income by the amount of your contribution (either in the year of the contribution or you can carry it forward), and grow tax free while in the plan. However, any withdrawals made from the plan are subject to income tax and the contribution room is lost. For this reason, contributions made to these accounts should only be withdrawn early if absolutely necessary (like all things, there are exceptions such as a marriage breakdown where assets can be transferred, but that is beyond the scope of this topic).
Once retired and no longer earning employment income, the assumption is that your taxable withdrawals from this account will be at a lower tax bracket than while you were contributing to your account, giving you overall tax savings. However, like all registered accounts, there is a limit on how much may be contributed - 18% of your prior year’s income, up to a specific amount (for 2025 it is $32,490). If you have not made contributions previously, your unused contribution room will carry forward, so once you reach your peak earning years you may have a large amount of contribution room to catch up in these accounts.
When looking at leaving a legacy or planning your estate, you may want to do this through your investment accounts or via a direct transfer of property. Another option to look at is whole life insurance. This should be reviewed to see if its right for you, but may be a tax efficient way to transfer wealth to the next generations, maximize the benefit of a charitable donation, or equalize an estate without forcing a liquidation of assets. You will want to speak with your Financial Advisor and Accountant to determine the best way forward.
It is also important to remember that your goals don’t exist in a vacuum - some balance is needed. While some items should be checked off before moving forward (you will want to have an emergency fund before saving for a vacation property for example) you don’t want to sacrifice saving for retirement or your child’s education in order to save a down payment. Have an honest discussion about what your goals are, their timeframe, and what you can realistically save on an ongoing basis. Then you can determine how much you should be saving, and where, to maximize your ability to reach those goals.
Next time we will be talking about protecting your downside, and allocating some of your savings to insurance to protect your plan.
Elyce Harris is a CFA Charterholder working with Cornerstone Investment Counsel, a registered ICPM in Alberta, Canada. She is also a licensed insurance broker in Alberta, Ontario, and PEI. While every effort is made to ensure the accuracy of statements, errors may occur. If a specific stat or carrier policy is cited, a source will be provided, however some opinions / generalizations have been provided without a specific source.