Compare: FHSA vs TFSA vs RRSP
Learn about the key differences between FHSAs, TFSAs and RRSPs.
Updated 
7 min. read
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.
Key differences between an FHSA, TFSA and RRSP
Determining which popular savings accounts are right for you requires a careful analysis of the characteristics of each. We’ve done all the hard work for you, with a quick guide below on how an FHSA, TFSA and RRSP compare.
FHSA | TFSA | RRSP | |
|---|---|---|---|
Designed to: | Provide Canadianswith a unique savingsvehicle to help withthe purchase of a home. | Provide a versatile savings account withtax-free withdrawals for any reason. | Let you contribute a large portion of your income into a tax-deferred account made to help you save for retirement or even qualifying home purchases and educational costs. |
Eligibility: | Canadians who are between the age of 18 footnote 1 and 71 at the time of account opening who haven’t inhabited as a principal place of residence a home owned by them or by their spouse orcommon-lawpartner, at any timein the current calendar year or previous four calendar years. | Canadians who are 18+. | Canadians who are 18+ and can contribute to an RRSP until they turn 71. |
Contribution: |
|
|
|
Qualified Holdings: | All investment growth is tax-free.You can hold a mix of:
| All investment growth is tax-free. You can hold a mix of:
| All investment growth is tax-deferred.You can hold a mix of:
|
Withdrawal: | Allows you to make tax-free qualified withdrawals for a qualified property purchase. Other withdrawals are taxable. | Allows you to make tax-free withdrawals for any purchase. | RRSP withdrawals aretypically subject towithholding tax. Some qualified withdrawals, such as those made as part of the Homebuyers Plan (HBP) or Lifelong Learning Plan (LLP), are not subject to withholding tax, although youshould be aware of rulesrequiring you to pay back the withdrawn amounts into your RRSP over time. RRSPs must be fullywithdrawn, converted to a Registered Retirement Income Fund (RRIF) or used to purchase an annuity by the last day of the calendar year when you turn 71. Learn more about the RRSP withdrawal rules from the Government of Canada |
Maturity: | If FHSA fundshave not beenused for a qualifying homepurchase byDecember 31 of the year that includes the earlier of (i) the 15thanniversary of opening your first FHSA,or (ii) your 71stbirthday, the accountmust be closed, or funds transferredinto an RRSP or RRIF. Your FHSAmust also be closed byDecember 31of the yearfollowing your first qualifying withdrawal. | There’s no maturity date. | Funds must be withdrawn, converted to a RRIF, or used to purchase an annuity by the last day of the calendar year when you turn 71. |
Transfers: | Can transfer funds from an FHSA to another FHSA, RRSP or a RRIF on a tax-free basis. Also, individuals can transfer an RRSP to an FHSA on a tax-free basis,subject to FHSAcontribution limitsand wherecertain conditions are met. | You cannot transfer funds directly from a TFSA to an FHSA. Funds must bewithdrawn and contributed, subject to contribution limits. | It is possible to transfer your RRSP to your FHSA under certain circumstances, but be sure that it doesn’t exceed your available contribution room inyour FHSA. Unlike an FHSA, there’s no direct way to transfer from your RRSP to your TFSA on a tax-free basis. |
Beneficiaries: | You can name a spouse or common-law partner as successor account holder or a non-spouse as a beneficiary. | You can name a spouse or common-law partner as successor account holder or a non-spouse as a beneficiary. | You can name a spouse or common-law partner as successor account holder or a non-spouse or financially dependent child/grandchild asa beneficiary |
Summary
There’s no best savings account, but as this article shows, choosing between an FHSA, TFSA or RRSP comes down to your goals and what you want to accomplish. Still have questions? Contact a BMO investment professional to learn more about our different savings and investment accounts and how they can match your needs.
Learn More
Connect with a BMO Investment professional to learn more about our registered accounts.
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Footnotes
Footnote 1 detailsIn certain provinces and territories, the legal age at which an individual can open an FHSA is 19 years of age.