TFSA vs RRSP vs FHSA: Which One Should You Use First?

Start with your TFSA. Layer in the others once you have a goal.

"I have some money saved. Where do I actually put it?"

Short answer: start with your TFSA. It is the most flexible account Canada offers. You can invest anything inside it and withdraw any time, tax-free. Once you have a specific goal, first home or retirement, layer the others in. Here is how to think about all three.

What even is each one?

Canada gives you three registered accounts that let your money grow without getting taxed the usual way. Each one is built for a different situation.

TFSA (Tax-Free Savings Account): You put in after-tax money. It grows tax-free. You take it out tax-free. No rules on what you use it for. No deadline. No penalty. The 2026 contribution room is $7,000/year and it accumulates since you turned 18. Check yours on CRA MyAccount.

RRSP (Registered Retirement Savings Plan): You contribute pre-tax money, which lowers your taxable income now. You pay tax when you withdraw, ideally in retirement when your income and tax rate are lower. Contribution room is 18% of your previous year's earned income, up to a cap.

FHSA (First Home Savings Account): Brand new as of 2023. You get a tax deduction going in (like an RRSP) and tax-free withdrawals if you use it for a first home (like a TFSA). $8,000/year up to a $40,000 lifetime limit. Only for first-home buyers, but genuinely the best of both worlds if that is you.

So which one first?

Here is the honest version, not the textbook version.

If you are 18-25 and just starting out: go TFSA. Your income is probably low right now. An RRSP deduction saves more the higher your tax bracket, so if you are earning $45K it is not doing much. Start with your TFSA. Invest whatever you can. The room accumulates even if you do not use it.

If you are saving for a first home: open an FHSA the second you are eligible. The $8,000/year deduction plus tax-free withdrawal combo is genuinely hard to beat. Stack TFSA contributions on top if you have extra.

If you are earning $70K+ with no immediate savings goals: start adding RRSP. Now the tax deduction actually moves the needle, especially if you expect to be in a lower bracket in retirement.

The order most young Canadians should follow

• Open a TFSA and start investing. Even $25/month is fine.

• If you want to buy a home someday, open an FHSA immediately. The sooner you open it, the sooner the 15-year clock starts.

• Add RRSP once your income crosses $60-70K and you are thinking long-term.

One thing nobody tells you

These are not savings accounts in the traditional sense. They are account types. You can hold ETFs, stocks, bonds, GICs inside all three. Having a TFSA and having money invested in your TFSA are very different things. Make sure your money is actually working inside these accounts, not just sitting in cash earning 1%.

The best account is the one you actually open and use. Start simple. Start now.

FAQ

Can I have all three at the same time? Yes. TFSA, RRSP, and FHSA do not compete with each other.

What happens to my FHSA if I never buy a home? You can transfer it into your RRSP or RRIF with no tax hit. You do not lose the money, just the home-buyer benefit.

Is the TFSA really tax-free? On Canadian investments, yes. If you hold US dividend stocks, the US government still withholds 15% even inside a TFSA. Inside an RRSP that withholding is waived under tax treaty. Worth knowing if you invest in US stocks.