TFSA versus a non-registered account
Investment income earned through interest, dividends or capital gains is tax-free.
If you contributed $500/mth for 20 years to a TFSA, you would enjoy a total tax savings of $40,159 over a non-registered account.
Assumes a $500 monthly contribution for 20 years, a 6.5% rate of return and an average tax rate of 25%.
Make your money work for you, without all the effort. It’s simply called... compound interest.
The concept of compound interest is simple: interest is earned on not only the principle, but on top of interest and also interest upon interest! The cycle of earning causes the growth to snowball faster and faster at what we call an exponential rate. This concept is not new, but not many people understand it.
The magic ingredient of compound interest is: TIME
The sooner you save, the more time your snowball will grow faster. An investment left untouched for a period of decades can add up to a large sum, even if you never invest another dime.
In a TFSA, this snowball can grow even bigger and faster. Normally, interest is taxed on investment, however, due to nature of the TFSA, your interest in not taxed, so there is more money left for interest to compound itself on.
The key is to start now and contribute what you can! It may seem like it’s not worth it, but even small contributions of $25-$100 per month add up over time. Time is your best friend and the one thing that makes compound interest so effective. Saving now and starting early will pay dividends in your future and help you accumulate extra money. That’s the power of compound interest and why it pays to start saving now.