Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) do not offer returns on their own – they are accounts that hold investments. Depending on the investments you hold in a TFSA or RRSP, your return will vary.
One consideration when comparing these two savings plan options is the effect of tax. RRSP contributions are tax-deductible, meaning they are made with pre-tax dollars. RRSP withdrawals are fully taxable – however generally withdrawals are not made until retirement, when your income (and tax rate) may be lower than it is when you contribute.
TFSA contributions are not deductible and are made with after-tax dollars. TFSA withdrawals, which can be made at any time for any reason, are tax free.
Consider taxes as well as your savings goals to decide which may be right for you, or to consider a combination of both. Speak to a financial representative for a review of your options, and see a quick comparison of TFSAs and RRSPs on GetSmarterAboutMoney.ca.