You may have heard the acronyms TFSA, RRSP, and FHSA being tossed around in terms of accounts you should be investing in. However, you may be wondering… what do they actually mean? Below is a summary of the main differences between the three, and which one you should invest in (as a young adult). 

TFSA (Tax-Free Savings Account) 

Just as the name states, this is a tax-free government-registered savings account available to all Canadians. It is tax-free, because any income earned within the account (such as interest or dividends from investments) can be taken out of the account and NO TAX needs to be paid. 

HOWEVER, there are contribution limits to TFSAs, which you must be aware of. First, you have an annual dollar limit that accumulates each year you have your TFSA open. This is calculated on an individual basis, and you can determine this by accessing your Canada Revenue Agency (CRA) account (see this short blog post here for how to do this). Currently, the annual limit is $7,000. This means that the maximum you can contribute to your TFSA for 2026 is $7,000. 

RRSP (Registered Retirement Savings Plan)

This is a separate government-registered account that is available to Canadians. However, this account is different from a TFSA for the following reasons: 

• Any money you add to an RRSP is then included as a deduction on your tax return! What does this mean? When you make an RRSP contribution, you will then receive a tax slip from your bank for the amount you contributed, which will then reduce the amount of taxes you owe (Yippee!!!)
• Any money you withdraw from your RRSP is TAXED (boooo). If you withdraw money from your RRSP, you will get a different tax slip from your bank that means you need to include the RRSP withdrawal in your income, which means you pay more tax – sad 😦
  • Side note: there are two situations where you can withdraw your money from your RRSP tax-free – through the Home Buyers Plan or the Lifelong Learning Plan. They are only tax-free because you need to repay the funds back to your RRSP over time (SO DON’T BE DECIEVED). 

An RRSP also has a contribution limit, the same as a TFSA. This can also be checked on your CRA online account. Your contribution limit is impacted by various things, such as if you receive a pension from your work. This is a complex calculation and is done for you. This is why you need to check your CRA online account for your RRSP contribution room. DO NOT, I REPEAT, DO NOT EXCEED YOUR CONTRIBUTION LIMIT OR YOU WILL INCUR PENALTIES. 

You also have an RRSP deduction limit, which is similar to the contribution room, but it restricts the amount of your money added that can be deducted on your tax return. 

FHSA (First Home Savings Account) 

The first home savings account is a new government-registered account that combines the benefits of both a TFSA and RRSP – queue Best of Both Worlds by Hannah Montana. In this account you get BOTH a deduction from your income for taxes (like an RRSP) AND any income you accumulate is tax-free when you use the money (like a TFSA). 

The catch is that this is a one-time account that you can use to save for a downpayment on a house, and is only available to first-time home buyers.

WHICH ONE AND WHY??? 

Now for the most exciting part: which one should you invest in and why?? Just like most answers in tax/finance: it depends. However, generally, you should invest in this order: 

1. TFSA: All young adults should have a TFSA that they open and regularly contribute to. You can consider this like a regular savings account. You can use the account to save up money, and withdraw as needed for larger purchases (such as a vacation, car, etc). Please note the withdrawals can take a few days to process, so don’t use it as your emergency fund!!! 
2. FHSA: If you are a young adult who has never bought a home but wants to eventually, you should absolutely take advantage of the benefits of this savings account. Just be wary that the funds can only be withdrawn for the purposes of buying a home, so this should NOT be used as an emergency fund or general savings account. 
3. RRSP: An RRSP should be your last option for saving/investing as a young adult (unless you have lots of excess cash, which is very unlikely if you are anything like me). Now young adults often are earning the least amount of money that they will earn in their adulthood (because we are all boss-ass bitches). Therefore, you should utilize the RRSP deduction on your taxes when you are earning more money, when the deduction will actually help you pay less tax

If you have any comments, thoughts, or questions, please feel free to drop them in the contact box below, and/or leave a review! 

I will have another blog post coming about how to invest, what it means to invest, and why its important as a young adult to start – so stay tuned!