I finally decided what to do with the tax-free savings account (TFSA) recently introduced by the Canadian government. Because I’ve got $5,000 of contribution room to play around with this year, I’ll move my emergency fund into it in a combination of a regular money-market fund and some GICs. Once I move most of my short- and medium-term savings into the TFSA, I can then start looking at it as a way to save for the long term (say, by holding stocks). In the meanwhile, it makes more sense to save the fairly hefty tax levied on my interest income than it does to hold equities in the TFSA in order to avoid capital gains tax a long way down the road.
PCFinancial offers a slightly higher interest rate for their TFSA high-interest savings account (3% to ING Direct’s 2.7%), but they ding you with a $50 transfer fee if you want to move your TFSA money to a different institution (say, if you want to invest in TD e-series mutual funds). You could withdraw for free and deposit it normally, but that still uses up your TFSA contribution room and you won’t be able to contribute as much until the next year. ING Direct doesn’t ding you with the fee and they have better GIC rates, so I’ll probably go for them.