Student Guide to Setting up a HISA, TFSA or RRSP

As a university student, buying a house and retirement may feel like distant goals — something for future you to worry about.

But even if you’re not ready to begin saving, it’s never too early for current you to learn how to use different accounts to your advantage. Developing a saving strategy now will set you up for financial security as you age.

Here are three different types of savings accounts you should know, with tips on how to use them to earn more and take advantage of tax benefits.

High-interest savings account (HISA)

A HISA offers higher interest rates than a standard savings account. Interest is calculated based on your daily balance and paid out monthly. Because HISAs are geared toward savings, they usually don’t offer debit cards, cheques or investment options.

HISAs are not tax-advantaged, meaning you will pay tax on the interest they earn. But, they offer advantages beyond high interest rates that make them a great savings vehicle:

No restrictions on the amount you can contribute or withdraw.
No minimum balance requirements.
Usually, low or no monthly account fees.

A HISA is an excellent option for saving towards an emergency fund because you can easily access the cash without withdrawal penalties.

🤓 Nerdy Tip: A good rule of thumb is to save three to six months of essential expenses in an emergency fund. But don’t worry if it takes you several years to do so. Start by saving small amounts and bump up your savings as your income increases.

Most banks allow you to open a high-interest savings account online — in fact, online-only banks may offer the most competitive rates. You’ll need to be at least 16 years of age and a Canadian resident, or have a valid work or student visa.

Consider opening a HISA in a bank separate from your primary chequing account to reduce the temptation to spend the funds.

» Not a Canadian resident? Don’t worry. Check out our Best Banks for International Students to see your options.

Tax-free savings account (TFSA)

TFSAs enable you to save and invest money without paying taxes on dividends, interest or capital gains when you withdraw funds.

These accounts have annual contribution limits (in 2024, it’s $7,000), but any unused room rolls over to the following year. You can see how much space you have in your TFSA through your CRA My Account. Overcontributions will be taxed, so check your TFSA limits each year.

Unlike other registered accounts, you can withdraw money from your TFSA without penalty. However, you will lose the previously used contribution room until the next year.

The tax advantages and versatility of a TFSA make it a good account for savings toward longer-term goals, like buying a car or going on an international vacation.

You could also hold low-risk investment options like GICs in your TFSA to achieve medium-term savings goals, such as a down payment or tuition for future schooling.

🤓 Nerdy Tip: While moving money out of a TFSA is easy, do so with caution because tracking contribution limits is tedious. These accounts are most valuable when used as part of a long-term investing strategy rather than a place to store an emergency fund.

To be eligible for this account, you must:

Be at least 18 years old.
Be a Canadian resident.
Have a valid Social Insurance Number (SIN).

You can open a TFSA at the financial institution of your choice. The account you choose may vary depending on the investment options you’re looking for. You may opt for a standard deposit account or an investment account through a brokerage, enabling you to invest in stocks, bonds, ETFs, and more.

» Not a Canadian resident? Don’t worry. Check out our Best Banks for International Students to see your options.

Registered retirement savings plan (RRSP)

RRSPs are tax-deferred savings accounts designed to help Canadians save for retirement. Your contributions are tax-deductible, which may reduce your annual income tax. As such, it’s best to prioritize an RRSP as you start making money, and move into higher tax brackets.

Money held in an RRSP grows tax-free until you withdraw it, ideally in retirement when you’ll likely be in a lower tax bracket. To amplify your savings, you can invest your RRSP funds in stocks, bonds, exchange-traded funds (ETFs) and other investment vehicles.

RRSPs have annual deduction limits of 18% of your earned income from the previous year. You can contribute to your RRSP until December 31 of the year you turn 71. Then, you must convert your account to a registered retirement income fund (RRIF) or make other arrangements to withdraw your funds.

Opening an RRSP might feel premature for students, especially if you’re not yet earning an income. But having this account may help you build a savings habit, and every little bit counts.

You can defer tax deductions for contributions until a year when you’re earning more and liable to owe income taxes.

🤓 Nerdy Tip: As you enter the workforce, taking advantage of RRSP-matching programs through your employer can be a strategic way to boost your retirement savings.

To be eligible for an RRSP, you must:

Be a Canadian resident.
Have earned income.
File a tax return.
Be under 71 years old.

The RRSP you choose should depend on your preferred investment options. A self-directed RRSP enables you to invest in stocks, bonds and other investment vehicles, while a standard deposit account has more limited options.

» Not a Canadian resident? Don’t worry. Check out our Best Banks for International Students to see your options.

The best strategy is self-awareness: be honest with yourself about where you’re at financially and what your goals are. If this is your first time saving money for the future, start small and easy: Open a HISA and aim to put away $500, then $,1000, then $2,000. If you have steady income from employment, but you’re still in a relatively low tax bracket, think about opening a TFSA to save for longer term goals. Once you start earning significant income, it’s time to explore an RRSP to help lower your income taxes and take advantage of any available employer matching.

Not all banks — or bank accounts — are created equal. There are some clear benefits to setting up multiple accounts at different banks (just be mindful of any fees!). While Big 6 banks might have convenient student chequing or credit card options, they often pay the lowest savings rates in the country. Consider opening your savings accounts at an online bank or credit union where the rates are much more competitive.