Compare: FHSA vs TFSA vs RRSP

With the recent introduction of the First Home Savings Account (FHSA), there’s a new registered savings account to help your money grow, but how does the FHSA compare to a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP)?

FHSA

Launched in 2023, the FHSA is a new savings vehicle to help Canadians save for the purchase of a first home. With an annual contribution limit of $8,000, you can hold the same types of investments in a FHSA as in a TFSA or RRSP, including GICs, mutual funds, as well as cash where investment growth is tax sheltered, and your money can grow tax-free. The FHSA allows for tax-free qualified withdrawals for purchase of a qualified home, while any other withdrawals are subject to taxes. Like an RRSP, contributions to your FHSA are tax-deductible, helping reduce your taxes each year. 

Try our new FHSA calculator to see how an FHSA account can help you save for your first home. 

TFSA

A TFSA is the jack-of-all-trades of registered savings accounts. It lets your money grow tax-free and you can withdraw holdings without any taxable implications. This makes a TFSA an ideal way to save for goals like retirement or a new home, as well as smaller goals like vacations and important purchases. If you've never contributed before, you may have as much as $95,000 (for those aged 18 or older in 2009) in available contribution room to grow your wealth tax-free. Unlike FHSAs and RRSPs, your TFSA contributions are not tax-deductible. 

RRSP

Saving for retirement is easy with an RRSP. You can make tax-deductible contributions until the age of 71, up to 18% of your previous year’s earned income, up to a maximum of $31,560 for 2024. With a larger annual contribution limit than a TFSA, an RRSP provides an ideal way to both lower taxable income and save for retirement. An RRSP can also help you pay for your first home with the Home Buyers’ Plan (HBP) or education and training costs with the Lifelong Learning Plan (LLP).

What to consider before opening a registered investment account

It’s important to first imagine your savings goal before you start a plan of action. Think about what you hope to accomplish and when you hope to achieve it. This will help you to determine what type of savings account would best suit your needs. For example, imagine you’ve been dreaming about owning your first home and are thinking about the best course of action to start funding that dream. Well, in this scenario, an FHSA is perfectly tailored to meet your goals. In a similar manner, if you’re interested in saving for retirement and aren’t sure where to put your money, an RRSP would be the great start because the account was mainly created to help save for retirement.

For savers and investors without a substantial income, a TFSA is probably the best choice, because they’ll benefit less from the tax-deductibility feature of RRSPs and FHSAs, while still enjoying the tax-free withdrawals and flexibility that a TFSA offers. 

Another key aspect to consider is any possible withholding, contribution limits and types of accepted withdrawals. If you’re saving for general financial security, a TFSA is a great way to save for that goal without any tax implications to withdrawing the funds from the account.  But if you’re thinking seriously about your first home purchase, the FHSA is an ideal account to save and invest toward that goal, since you’ll not only avoid tax withholding when you buy your home, but you’ll also reduce your taxable income each year along the way. 

And remember – you don’t have to pick just one. Many Canadians hold all three account types because each one has a specific role to play in helping them reach their financial goals. A BMO investment professional can help you understand which account types make the most sense for your financial future.