TFSA vs RRSP vs FHSA: Which Account First?

The Three Accounts at a Glance

These are the 2026 figures at the time of writing. RRSP room also includes any unused room carried forward and is reduced by pension adjustments from an employer plan. Your own room shows up in your CRA My Account and on your Notice of Assessment, and it can lag recent transactions, so check it before you contribute.

TFSA in Plain English

The Tax-Free Savings Account is the most flexible of the three. You contribute with money you've already paid tax on, and the growth and withdrawals are tax-free. Anyone who has been eligible since the TFSA launched in 2009 and never contributed would have $109,000 of cumulative room in 2026.

• Withdrawals come back. Whatever you withdraw is added to your room on January 1 of the following year, not the same year. Putting money back too soon is how people over-contribute.
• Over-contributions cost 1% a month on the excess amount until it's fixed.
• It doesn't count as income, so TFSA withdrawals don't affect income-tested benefits.
• It's a container, not an investment. A TFSA can hold a savings account, GICs, stocks, or ETFs. What's inside determines your return.

RRSP in Plain English

The Registered Retirement Savings Plan works the opposite way: contributions reduce your taxable income now, growth is sheltered while it's inside, and withdrawals are taxed as ordinary income. The bet is that your marginal tax rate will be lower when you withdraw than it was when you contributed.

• The deduction can be carried forward. You don't have to claim it the year you contribute, which can help if you expect a higher-income year later.
• Withdrawals are taxed. The institution withholds tax at source on withdrawals, and the amount becomes income on your return.
• Home Buyers' Plan. First-time buyers can withdraw up to $60,000 from an RRSP for a home and repay it over time instead of paying tax on it.
• The clock. An RRSP has to be converted (typically to a RRIF) or cashed out by the end of the year you turn 71.

FHSA in Plain English

The First Home Savings Account combines features of both: deductible contributions like an RRSP, and tax-free withdrawals like a TFSA, as long as the money is used for a qualifying first home. To open one you generally need to be a Canadian resident, at least 18, and a first-time buyer, meaning you haven't lived in a home you or your spouse owned in the current year or the previous four calendar years.

What makes it interesting: if you don't end up buying, the balance can be transferred to your RRSP or RRIF without using up your RRSP room. That's why many people see it as close to "free" extra room. The account can stay open for up to 15 years. Our FHSA explainer covers the rules in more depth.

What About RESPs?

If you're saving for a child's education, the Registered Education Savings Plan is the fourth account worth knowing. Contributions aren't deductible, but growth is sheltered, and the government adds a Canada Education Savings Grant of 20% on the first $2,500 contributed each year. The lifetime contribution limit is $50,000 per beneficiary, and the lifetime grant limit is $7,200.

Which One First? A Common Order of Operations

There's no universal answer, but many Canadians use a sequence like this one, adjusting it for their own situation:

1. Capture any employer match. A matched contribution to a group RRSP is an immediate return that's hard to beat.
2. Use the FHSA if you're eligible and a first home is on your horizon, since it pairs a deduction with tax-free withdrawals.
3. Choose between TFSA and RRSP based on income. Higher income now than you expect in retirement usually favours the RRSP deduction. Lower income now, or a need for flexibility, tends to favour the TFSA. The RRSP vs TFSA calculator lets you test your own numbers.
4. Non-registered accounts come after your registered room is used, or when you need money you can't afford to lock up.

Common Mistakes to Avoid

• Confusing the account with the investment. Opening a TFSA doesn't mean you've invested; it depends what you buy inside it.
• Over-contributing. Track TFSA withdrawals and RRSP room carefully. Penalties apply on excess contributions.
• Ignoring where each asset sits. Interest-heavy assets and foreign dividends are treated differently in different accounts. Continue with how investments are taxed and US withholding tax.
• Skipping the deduction. Forgetting to claim an RRSP contribution leaves a refund on the table.

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