How to invest with a TFSA

In recent years, Tax-Free Savings Accounts (TFSAs) have grown in popularity. This is because they offer a simple way to help grow your investments free of the application of Canadian income tax. If you want to work toward your financial goals, you should be aware of the numerous benefits of TFSAs.

Get started with TD EasyTrade™

Get started with TD Direct Investing

How does a TFSA work?

TFSAs aren't simple savings accounts. You can unlock real value once you start thinking of them as investment vehicles. In managing your TFSA, you also need to consider your risk appetite as well as whether your goals are long-term or short-term.

The Income Tax Act states that you may only hold qualified investments in your TFSA; these can include mutual funds, publicly listed stocks, government bonds, certain corporate bonds, Exchange-Traded Funds (ETFs), Guaranteed Investment Certificates (GICs), cash and even certain options

The types of investments you can purchase also depend on the type of TFSA account you have.

TFSA Contribution Limit

The TFSA contribution room for each year will dictate the maximum amount that you can contribute to your TFSA. Here are the TFSA contribution limits by year: 



































Once you turn 18, you are eligible to open a TFSA account and start contributing to it. The government of Canada introduced the plan in 2009 for Canadian residents. If you were 18 or older in 2009, and have never contributed to a TFSA, you will have $88,000 of contribution room available in 2023.

Any withdrawals made from a TFSA, will be added back to your contribution room at the beginning of next calendar year.

Investing with a TFSA

Here are two of the more popular ways to invest with a TFSA:

  1. Regular TFSA Account:
    With a regular TFSA account, you simply open a TFSA registered plan with your bank. The investments you can hold in this TFSA will naturally be restricted to the investment types offered by your bank. Typically, these would include GICs, savings accounts and your bank’s mutual funds.

  2. Self-directed TFSAs:
    With a self-directed TFSA, you are not restricted to the funds offered by your financial institution. You can invest in mutual funds, GICs, stocks, bonds, ETFs and more offered by just about any financial institution. As the account holder, you get to make all the decisions. Plus, you get control over the management of your investments. With a TFSA from TD Direct Investing, you can position yourself to take advantage of opportunities in both Canadian as well as U.S. markets. Before purchasing investments, remember to take into consideration your risk profile.

The different types of investments you can hold within a TFSA

Savings Account in a TFSA
Let's say you're looking for a short-term investment. One that doesn't carry too much risk and you're too busy to monitor your investments. If that's the case, a savings account in your TFSA may work for you. Fairly basic, it works just like a regular savings account. You put cash in, and, over time, it earns interest with a guaranteed rate of return. The big difference is that the interest you earn with your TFSA is tax-free.

GICs in a TFSA
What if you wanted to earn interest at a guaranteed rate while protecting your principal? GICs or Guaranteed Investment Certificates allow you to do exactly that. They can be the ideal investment vehicle if you have a fixed-term savings goal like saving for a down payment. Plus, they generally offer a rate of return that's higher than most high-interest savings accounts. The trade-off is that the money you put in is usually not easily accessible for the length of the term. GIC terms differ and can range from a month up to 5 years. You can choose the length of time that works best for you. You can usually also choose how frequently you receive interest payments. For multi-year GICs, interest paid can be compounded. As you will receive your initial investment back (plus accrued interest) at the end of the term, GICs are generally considered a safe investment. A self-directed TFSA will allow you to hold and manage GICs from different financial institutions in one place.

Bonds in a TFSA
Think of a bond as a loan you give to an organization or government entity. In a self-directed TFSA, you can get either government (federal, provincial, and municipal) or corporate bonds. Government bonds are generally considered less risky than corporate bonds, but the trade-off is a potentially lower rate of return. Bonds pay out periodic payments throughout the term. And, when compared to stocks, bonds may generally be considered safer investments. Look for a bond with a term that matches the timeframe of your goals.

Mutual Funds in a TFSA
Here's a quick primer on mutual funds. Each mutual fund is a portfolio that may contain stocks, bonds or other investable assets that are selected and managed by a professional fund manager. Allowing your investments to be professionally managed can have significant advantages. You can choose from a wide range of mutual funds depending upon your risk tolerance and growth objectives. As the value of mutual funds can fluctuate with the market, there is a degree of volatility and risk. Many investors consider diversifying their portfolio to enhance the potential return on their investments. If you want to pick and choose between mutual funds from different financial institutions, a self-directed TFSA may be the way to go. TD Direct Investing offers a range of professionally managed funds across all asset classes.

ETFs in a TFSA
ETFs or exchange traded funds, as the name suggests, can be purchased or sold on a stock exchange like a regular stock. While most mutual funds seek to outperform an index, ETFs usually track an index or commodity. If you're looking for a long-term investment, ETFs could be right for you. Another potential advantage of going the ETF route is a management expense ratio (MER) that's often lower than mutual funds that require additional research. However, one thing to remember is that as ETFs are traded on an exchange, their value may fluctuate due to supply and demand.

Stocks in a TFSA
If you're not afraid of a little volatility, you may want to consider purchasing stocks in your TFSA. Your willingness to take on additional risk may potentially result in a higher rate of return. You should make sure that the stocks you purchase are considered qualified investments i.e., they should be listed on a designated stock exchange such as the Toronto Stock Exchange (TSX) or the New York Stock Exchange (NYSE). The actual process of investing in stocks in a TFSA is essentially the same as in a non-registered investment account, but you don't pay tax on any Capital gains. This means that, if you sell high, your profits are tax-free.

At TD Direct Investing, you can trade on Canadian and U.S. markets including the TSX, National Association of Securities Dealers Automated Quotations (NASDAQ) and NYSE.

Investing with intent

If you want to play a more active role in investing, a self-directed TFSA can allow you to be strategic. Plus, if you wish to purchase individual stocks and bonds, you must open a self-directed TFSA. Simply put, it can be empowering as it gives you a wider range of investments to choose from.

Open a self-directed TFSA with TD Direct Investing and get more insight into the performance of your portfolio with real-time market data and insightful research reports.

Share this article

Related Articles

View our learning centre to see how we're ready to help

Invest with us – Choose your option

  • Start investing in stocks and TD ETFs in both Canadian and U.S. currency, with no minimums on this easy-to-use mobile app.

  • Invest confidently with user-friendly platforms, innovative tools, support, and learning resources designed for every level of your investing journey.

Need help choosing a DIY investing service? Compare platforms

Have a question? Find answers here