Talking Cash: Advantages tax-free savings accounts offer students
We're nearing the halfway point
of first semester. Hopefully things
are going well for you thus far both
in class and in managing your
money.
For some of us with student loans, this is the first time we've handled such a large sum of money and it can be difficult to know what kind of account you should deposit that huge OSAP cheque into.
A few weeks back I went over budgeting tips for the school year. The Fanshawe Financial Society was also stationed in the Student Centre building the week of October 17 to offer budgeting advice to other students and to talk to students generally about saving money while in college. This week, I'm going to focus on where your money ought to be sitting during the school year: a tax-free savings account.
A TFSA is exactly as it describes: a savings account where interest accumulates tax free. It doesn't necessarily have to be a savings account; it could also include stocks, bonds, mutual funds, and term deposits such as GICs. If you are at least 18 years old, you can open one and deposit up to $5,000 per year.
Placing any unused student loan money into a TFSA is a great idea because a TFSA will allow you to earn interest that will not be taxed. TFSAs are also fairly liquid, meaning you can get access to them at any time once you need to. They're not locked in, like RRSPs. Putting some of your loan in a TFSA is a much better idea than keeping the entire amount in your chequing account, because chequing accounts usually cost money. You shouldn't be paying the bank to hold your money, the bank should be paying you for the privilege. A TFSA is one way you can make them do that. Also, if you don't have a student chequing account set up, talk to your bank right away. You may even be able to get any fees incurred discounted back to the beginning of the school year.
You also shouldn't pay more in taxes than you need to. You can withdraw any amount from a TFSA at any time totally tax free, so you can put up to $5,000 in per year and take it out whenever you want to without being taxed. Make sure to check with your bank, though, to see if there are banking fees associated with withdrawals.
If you want to have the money available to you as quickly as possible during the school year and avoid a term deposit, just open a standard savings account as a TFSA so that you are less likely to be penalized by the bank for withdrawing. If you received a lump sum of, say, $3,000 from OSAP, you might want to keep about $1,000 in your chequing account (some banks require at least $1,000 to maintain fee-free status) and put the $2,000 in a TFSA where it will accumulate interest. The interest it generates will only be a few bucks, but it is tax free. Also, understanding how a TFSA works early in your life will be of great benefit to you when you've graduated and are working full-time and fortunate to be earning enough to be able to contribute the $5,000 annual max. You'll already have a head start against your peers in understanding how TFSAs work, and you'll be able to put that knowledge to its full advantage.
More info can be found at tfsa.gc.ca.
Jeremy Wall is studying Professional Financial Services at Fanshawe College. He holds an Honour's Bachelor of Arts from the University of Western Ontario.
For some of us with student loans, this is the first time we've handled such a large sum of money and it can be difficult to know what kind of account you should deposit that huge OSAP cheque into.
A few weeks back I went over budgeting tips for the school year. The Fanshawe Financial Society was also stationed in the Student Centre building the week of October 17 to offer budgeting advice to other students and to talk to students generally about saving money while in college. This week, I'm going to focus on where your money ought to be sitting during the school year: a tax-free savings account.
A TFSA is exactly as it describes: a savings account where interest accumulates tax free. It doesn't necessarily have to be a savings account; it could also include stocks, bonds, mutual funds, and term deposits such as GICs. If you are at least 18 years old, you can open one and deposit up to $5,000 per year.
Placing any unused student loan money into a TFSA is a great idea because a TFSA will allow you to earn interest that will not be taxed. TFSAs are also fairly liquid, meaning you can get access to them at any time once you need to. They're not locked in, like RRSPs. Putting some of your loan in a TFSA is a much better idea than keeping the entire amount in your chequing account, because chequing accounts usually cost money. You shouldn't be paying the bank to hold your money, the bank should be paying you for the privilege. A TFSA is one way you can make them do that. Also, if you don't have a student chequing account set up, talk to your bank right away. You may even be able to get any fees incurred discounted back to the beginning of the school year.
You also shouldn't pay more in taxes than you need to. You can withdraw any amount from a TFSA at any time totally tax free, so you can put up to $5,000 in per year and take it out whenever you want to without being taxed. Make sure to check with your bank, though, to see if there are banking fees associated with withdrawals.
If you want to have the money available to you as quickly as possible during the school year and avoid a term deposit, just open a standard savings account as a TFSA so that you are less likely to be penalized by the bank for withdrawing. If you received a lump sum of, say, $3,000 from OSAP, you might want to keep about $1,000 in your chequing account (some banks require at least $1,000 to maintain fee-free status) and put the $2,000 in a TFSA where it will accumulate interest. The interest it generates will only be a few bucks, but it is tax free. Also, understanding how a TFSA works early in your life will be of great benefit to you when you've graduated and are working full-time and fortunate to be earning enough to be able to contribute the $5,000 annual max. You'll already have a head start against your peers in understanding how TFSAs work, and you'll be able to put that knowledge to its full advantage.
More info can be found at tfsa.gc.ca.
Jeremy Wall is studying Professional Financial Services at Fanshawe College. He holds an Honour's Bachelor of Arts from the University of Western Ontario.
