DEPOSIT RATES RISING!

Over the years I've held savings and term deposits with a virtual division of one of Manitoba's Credit Unions. Generally, these virtual "banks" offer higher deposit rates than their "brick & mortar" parents. All Manitoba Credit Union deposits are 100% guaranteed without limit.  A number of years ago I asked one of them if this guarantee applies to deposits made by non-Manitoba residents.  The answer, at the time, was yes.  If  you live outside the province and are considering an investment, I'd recommend asking the question. 

With the recent uptick in the Bank of Canada overnight rate, deposit rates for all institutions are on the rise. Because of my particular interest in Manitoba Credit Unions and because they often offer the best available rates I decided to track their rates for a bit.  Until things stabilize or plateau, I'll update this as available rates change.  I've moved the chart to the top of the blog for easy access.

I'm finding it curious that a deposit rate of 5% for 5 years was available before the Bank of Canada hiked by a full 1% on July 13 and added an additional .75% on September 7.  There seems to be reluctance to move beyond 5%...but, it's gotta happen!

I haven't included all Manitoba Credit Unions.  A couple don't post their rates online.  A few others make no effort to be competitive and one retains the old "closed bond" format and membership is only open to a select employee group. 

Tax Free Savings Accounts (TFSAs) - Tax Savings For All!

TSFAs were introduced in Canada in 2009.  Every Canadian was allowed an annual deposit of $5,000 to a TSFA and all interest or investment income is exempt from tax...not only within the plan, but remains exempt even if and when withdrawn from the account.  The limit for the annual deposit is indexed to inflation and gradually increases over time in $500 increments.  To date we've had a limits of $5,000 for 4 years, $5,500 for 5 years and $6,000 for the past 4 years.  2015 was a bonus year when the Conservative government boosted the limit to $10,000.  The following year, the Liberals reduced the limit and reverted to the original plan with increases in $500 increments based on inflation.  

Over a 14 year period one could accumulate $81,500 in a TFSA.  If you've never opened a TFSA, you are eligible to deposit this full $81,500 right now!  Yes, the annual deposit limits have accumulated each year since 2009.  The accumulated limit is referred to as your "deposit room".

Many suggest that TFSAs are for the rich.  Yes, an annual TFSA deposit along with a an RRSP deposit does add up and many are unable to set aside such amounts for saving.  But, what about existing savings?  How about that small inheritance from Grandma that you tucked away for a rainy day?  Since the day you deposited it, you've received and T-5 from the bank and have paid tax on the interest each year.  Move it to a TFSA and pay no more tax on the interest income.

An interesting feature of TFSAs is that if you withdraw from the account for any reason...vacation, new car etc. the amount of the withdrawal is added to your deposit room for the following year.  So, if you withdraw $10,000 for that dream vacation, you could deposit $16,000 next year.  Note: Your deposit room for the current year does not change.  The $10,000 you withdraw this year can only be added back to your TSFA in the next calendar year.  Check your deposit room on your online CRA account.   

Upon retirement you might need to withdraw the annual earnings from a TFSA to add to retirement income.  As mentioned, any withdrawal this year can be re-deposited next year in addition to the annual $6,000 limit.  This rapidly increases the amounts eligible for deposit to the TFSA.  In a perfect world, over time you may have all non-registered (open) account savings in TFSAs and never pay another cent of tax on interest or investment income generated by these savings.

With current increase in all rates, including deposit rates, there's never been a better time to open a TFSA and begin enjoying TAX FREE INCOME!