Tobacco Free Spanking Account (TFSA)

Saving and Shaving are completely different things

Every so often, I get a comment somewhere along the line of “You’re $40,000 in debt, why are you saving anything? You could pay off your debt faster if you use that 15% you’re putting aside for savings for your debt repayment.” Yes, I sure could get ahead a little quicker with the debt repayment, but then in 2 ½ years I end up with nothing in my bank account? That doesn’t make a lick of sense. It’s really important that you establish a savings plan; it will help give you a glowing credit record and you’ll be one step closer to making purchases toward your big goals (buying a car, financing a house, taking an extravagant trip to Saskatchewan, etc); not to mention your retirement! I hate to be the one to break it to you, but if you spend your money willy-nilly and expect to maintain this kind of spending on your pension alone, you should also start planning to save a refrigerator box to live in for when you’re broke 5 years after retirement.

Think about it -  I mean really think about it. Most of us would like to retire today even though we still have a good 25 years left in the workforce, but that’s just not affordable. I would love to retire in my 50s and nowadays, we all are living well into our 70s, 80s, 90s, and oh god, 100s. If I live that long I really hope that I get to be that crazy crotchety old man who yells at teenagers to get off their hover-boards on the sidewalk! Imagine, if you’re living another 20-40 years after you retire, you better have a solid plan to make sure that you aren’t living on cat food and Melba toast. Figure out what you would need to spend every year to live comfortably. Consider that you already own your house and your debt is paid off so you really only need some money to eat well, pay utilities, buy all your crazy medications, and spoil your grandkids. I think this is all possible on around $1,000 per month. Now there are 12 months in a year, and you want to be retired for 30 years, that means that you need to have $360,000 in the bank to live comfortably for 30 years. How in the hell is this even possible?

Well the trick is to focus more on baby steps to establishing a savings. A general rule of Gail is that you should put away 10% of your income automatically into savings. What do I mean by savings you ask; well, this would include your retirement savings, long-term planning savings goals, and emergency fund. Yes, I said emergency fund; and FYI, new shoes are not an emergency - seriously. Doing this is simple, whenever you get a pay cheque, figure out what 10% of it is, and put it into long term savings. There are many benefits to saving, but one of the greatest ones is that you can get tax breaks from the government for doing so. That’s right, you can get actually save even more money by saving money! For example, if you’re looking to build an emergency fund, consider a tax-free savings account (TFSA). Almost every bank offers them, and the best part is, you can put $5,000 every year in there without getting taxed on the interest – how cool is that?

Now, since we’re on the topic of opening a new account, consider this: you do not have to stay with the same bank to open a new savings account. Since you love to shop so much, start shopping for the best accounts among the banks. They all want your business, but it is completely unnecessary to stay with only one bank. When you’re choosing a TFSA, watch for the interest rate, user fees, and accessibility. Paying a transfer out fee of up to $100 (I’m looking at you CIBC) on your money is completely counterproductive. If you put $5,000 into your account and let it sit for 1 year at a 1.25% interest rate you are only making $62.50 that $100 will gobble up all the interest you made, and then some. I did a little research and Redflag deals did a nice chart which compares a number of banks here in Canada. It was outdated so here’s what I found out as of November 21, 2010:

BMO

Transfer out fee: No

Interest Rate: 1.75%

Minimum Investment/Deposit: $50

Check Interest Rate Online: Yes

CIBC

Transfer out fee: $100

Interest Rate: 1.25%

Minimum Investment/Deposit: $25

Check Interest Rate Online: Yes

Canadian Tire Financial Services

Transfer out fee: No

Interest Rate: 1.50%

Minimum Investment/Deposit: None

Check Interest Rate Online: Yes

HSBC

Transfer out fee: $50

Interest Rate: 1.25%

Minimum Investment/Deposit: None

Check Interest Rate Online: Yes

ICICI Bank

Transfer out fee (quoted from their website): “Fees: ICICI Bank shall be entitled to receive a fee upon transfer of Account funds to another financial institution. Fees in effect at the time the Account is opened shall be disclosed to you in writing at that time. ICICI Bank reserves the right to amend these fees from time to time subject to minimum 30 days notice to you and where necessary to Federal and Provincial tax authorities.”

Interest Rate: 2.00%

Minimum Investment/Deposit: None

Check Interest Rate Online: Yes

ING  Direct

Transfer out fee: None

Interest Rate: 1.50%

Minimum Investment/Deposit: None

Check Interest Rate Online: Yes

President’s Choice Financial

Transfer out fee: $50

Interest Rate: 1.50%

Minimum Investment/Deposit: No

Check Interest Rate Online: Yes

RBC

Transfer out fee: $50

Interest Rate: 1.25%

Minimum Investment/Deposit: $100 or $25 with a monthly automatic withdrawal

Check Interest Rate Online: Yes

Scotiabank

Transfer out fee: No

Interest Rate: 1.25%

Minimum Investment/Deposit: No

Check Interest Rate Online: No (according to the person I talked to on the phone)

TD Canada Trust

Transfer out fee: None (but the person I talked to didn’t seem to understand what I was talking about so there might be a fee depending on what you’re transferring the money to)

Interest Rate: 1.25%

Minimum Investment/Deposit: None

Check Interest Rate Online: Yes

A bee with an itch is a nice way to say b!tch. 

ICICI is our interest frontrunner with a 2.00% interest rate (however they have the sketchiest “fee” section in my opinion); RBC wins for nicest and most helpful person, and Scotiabank wins for fastest response time. ING has this cool sort of MSN thing when you log onto their website and then someone chats with you about banking! How progressive! I realize that the handsome-voiced RBC man was just making a sales pitch, but he did bring up some great points. He told me not to look only at the interest rate, but consider the service and advice that you will receive from your bank. Sometimes there is a little more value than just the interest rate and I’m sure we can all agree that we’ve had some $hitty service from a number of banks. While I agree with him, I do think that for me the overall winner for me is BMO. Who cares about minimum investments when you have a savings account? You should definitely be putting more than $50 into it so their $50 minimum is nothing to stick a shake at. There you go; I’ve done the homework for you and even put up with the “bee with an itch” lady from the one bank which shall remain nameless. Let’s just call her T.D.

TFSAs are great for when you need your savings to be a little more liquid, i.e. for an emergency fund. If you’re planning to do some more serious long-term saving, start looking into RRSPs and GICs, which I will go into more detail in another blog. Keep up the good work and you’ll have so much money in the bank that those people who were taking your money in interest will have the roles reversed for a change!

Smell you later!

John