Comparing and contrasting FHSAs vs. TFSAs vs. RRSPs is tricky since the features and benefits of all 3 focus on enhancing your financial security. Understanding the finer details of these accounts and considering your personal savings goals will help you better understand which is best for you.
Each of these is an integral part of banking in Canada and has its own unique purpose and specific features. FHSAs provide a tax-free environment to hold your money as you save for your first home. TFSAs offer a tax-sheltered place to hold funds as you save for a short-term goal. And RRSPs are specifically used to save for retirement, but can also offer help if you want to buy a home or pay for further education.
Here, we look at each of these account types in detail, compare them side-by-side, and offer suggestions for those trying to decide which one they should use.
Key Takeaways
- The most obvious differences between FHSAs, TFSAs, and RRSPs involve the annual and lifetime contribution limits.
- FHSAs and RRSPs can both be used to purchase a home, but TFSAs are best for more short-term goals.
- RRSPs are designed for retirement savings but do have other uses and benefits.
Overview: FHSA vs. TFSA. vs. RRSP
The differences between FHSA vs. TFSA. vs. RRSP are often subtle and hard to understand, but important distinctions – like the annual and lifetime contribution limits – are what set them apart. You'll want to understand the features, tax considerations, and other details of each option before making a final decision on which you should open.
This table compares all 3 investment products so you can view their details in a helpful side-by-side format:
| Investment type | Example account | Features | Tax details | Contributions | Withdrawals |
|---|---|---|---|---|---|
| FHSA | Questrade FHSA | * Registered savings plan
* Used to save for a first home * Holds various investment types * Joint plans NOT available * Funds must be used within 15 years of opening the account or the end of the year when you turn 71 |
* Tax-deductible contributions
* Tax-free growth, provided funds are used to purchase a qualifying home |
* $8,000 annual limit
* $40,000 lifetime limit * Unused amounts carry over * Penalty of 1% per month for over contributions |
* Can be done at any time but taxes are levied if funds are NOT used to
purchase a qualifying home
* Contribution room is NOT restored * Doesn't affect government benefits |
| TFSA | Questrade TFSA | * Registered savings plan
* Used for short and/or long-term goals * Holds various investment types * Joint plans NOT available |
* Contributions are NOT tax-deductible
* Tax-free growth |
* $7,000 2024 annual TFSA limit
* Unused amounts carry over * Penalty of 1% per month for over contributions |
* Contribution room is restored, but added to the NEXT year
* Doesn't affect government benefits |
| RRSP | Desjardins RRSP | * Registered savings plan
* Used for retirement savings * Holds various investment types * Spousal RRSPs ARE available * Must empty funds or convert to an RRIF by the end of the year you turn 71 |
* Contributions are tax-deductible
* Tax-deferred growth (added to your taxable income for the year you withdraw funds, also a withholding tax on withdrawals) |
* RRSP limit is whichever of these is less: 18% of previous year's income
OR $31,560 (for 2024)
* Penalty of 1% per month for over contributions * Unused amounts carry over |
* Can be done at any time but taxes are withheld (except with the Home
Buyers' Plan or Lifelong Learning Plan)
* Contribution room is NOT restored * Withdrawals for the Home Buyers' Plan must be replaced within 15 years * Government benefits MAY be affected |
FHSA vs. RRSP and home buying plans
You don't have to decide between an FHSA vs. RRSP when saving to purchase a home – you can use both. But, of course, this doesn't mean that using both is a good idea for your particular situation. There are a few distinctions between them that can likely make one option more attractive and helpful than the other.
The Home Buyers' Plan allows you to borrow money from your RRSP to help fund the purchase of a new home. You're required to replace these funds and build your RRSP back up within 15 years, but it's a valuable opportunity that helps with making large down payments.
While the purpose of an RRSP is to save for retirement, with the caveat that you can borrow funds to purchase a home, the sole purpose of an FHSA is to help you save for and buy your first home. You can use the funds within your FHSA at any time, as long as it's to purchase a qualifying home, and there's no need to replenish them.
To summarize, you can indeed use both an FHSA and an RRSP to buy a property, as long as it's your first home (or meets the FHSA eligibility requirements). Combining the RRSP opportunities via the Home Buyers' Plan with the funds in your FHSA can mean you'll have a much larger down payment than you otherwise would, or you'll have more funds to put towards closing costs, etc.
How to choose which plan to invest in
While all of these accounts have impressive tax benefits and you can certainly take advantage of and hold all 3 at once, your specific savings goal will play a big part in which one you should use. Especially when debating between an RRSP and/or TFSA, your goals and intended timeframe should be carefully considered.
- A TFSA is your best bet if you're saving for a short-term goal. This could include vacations, home renovations, new cars or motorcycles, etc. Since contributions aren't tax-deductible, it makes more sense to use this for short-term purposes.
- An FHSA is an obvious choice if you're saving to buy your first home, but you can also open such an account if you've owned a home before. As long as you haven't owned (individually or jointly) and lived in your own home in the last 4 years, you can open an FHSA.
- An RRSP is typically used to save for retirement, and, as mentioned, funds can be used when you're buying a new home. Some funds can also be used, though, to pay for post-secondary education. The Lifelong Learning Plan (LLP) allows Canadians to withdraw up to $10,000 per year from their RRSP to help finance further education or occupational training.
As with the Home Buyers' Plan, though, any RRSP withdrawals made as part of the LLP must be fully repaid within 10 years.
FAQ
What is an FHSA?
An FHSA, or First Home Savings Account, is a relatively new savings product available for Canadians saving to purchase their first home. You can contribute up to $8,000 per year, to a lifetime maximum of $40,000, all tax-free.
Is a FHSA better than a TFSA?
This depends on your savings goals and timeframe. If you're saving to buy a home, an FHSA is better. But if you're saving for a short-term goal like a new car or vacation, a TFSA is a better choice.
What's the difference between an FHSA vs. TFSA vs. RRSP?
The biggest differences are the contribution and withdrawal limits and rules for each type of account. Their intended purposes also differ. An RRSP is for retirement savings, FHSA for a new home, and TFSA for short-term saving goals.
Can I contribute to my spouse's TFSA?
Unlike a spousal RRSP, spouses/partners can't contribute to the other person's TFSA – the account holder is the only one who can do this. However, you can always send funds to your spouse/partner and let them deposit the money.
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