Infographic: TFSA vs RRSP – The Journey of $1,000

How does saving using a TFSA compare to an RRSP? This infographic tracks the journey of $1,000 saved using each and demonstrates how they work and are taxed.

If you’re wondering how to decide between a TFSA and RRSP when it comes to your own savings, we’ve written about this decision in much more detail here

WealthBar-TFSARRSP-Infographic-Feb2016

16 Comments

Jim Kinnear

Very good graphic explanation.
With a TFSA, there is a limit to how much, per year, can be deposited without incurring a penalty.

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Red Harrison

I have never seen a TFSA that has a 6% rate of return. Let’s see these numbers with a reasonable rate of return like 1-2 %.

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Denny Hollick

Hi Red,

This is a pretty common misconception about TFSAs. Many people think that they can only be used with ‘high interest savings accounts’ or GICs. This is not the case.

TFSAs can be invested in stocks, bonds, ETFs and many other investments. Generally speaking in the long-term, returns of the US equities market as a whole is actually above 6%.

Check out this article here in MoneySense: http://www.moneysense.ca/columns/what-are-normal-stock-market-returns/

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Morridin19

If in your TFSA you just bought an ETF that tracked the Canadian stock market you would see an average return (over all historically available data) of around 9.1%. This doesn’t include the MER which is about 0.06% (for VCN and XIC). Not unreasonable at all.

Now if you are basing your rate on the most banks give for just holding cash in a savings account in your TFSA you need to educate yourself on some better uses for your TFSA.

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Tom Gilman

Well Red, you definitely don’t understand what a TFSA is intended to be. Not that I blame you. Banks have convinced Canadians that a 1-2% investment is appropriate. You have been mislead. I reccomend you seek sound advice.

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nnulk

What is the final estate if the employer is matching RRSP contributions? Is it a better choice in that case?

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Lucas

I noticed under RRSP additional Tax rebates from utilizing the RRSP are not considered. What additional $ are we saving… based on upfront-year end tax savings visa RRSP receipts here? It only displays RRSP holdings.

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Denny Hollick

Hi Lucas,

This is taken into consideration with the starting balances. The TFSA starts at $750 (because tax is deducted from your paycheque), and the RRSP starts at $1000 since you get those taxes back for any RRSP contributions you make.

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Tim

Why compare one vs the other? Why not position as a real wealth builder and demonstrate doing both! For example contribute to an RRSP and with the refund invest in the TFSA!

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Denny Hollick

We agree! We find many people don’t understand the difference between the two, so this is of particular interest to many. It’s not so much picking one, over another, and both have their advantages in certain circumstances.

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Varun

Would love for this to be an interactive page where you could drag the tax rate. For e.g., what if you started out with a marginal tax rate of 43%? How does the end result look in that case? Everyone’s personal situation will be different, which may tilt the final result one way or the other.

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