I’ve been thinking about opening one of those crazy new (relatively) Tax Free Savings Accounts (TFSA) through Royal Bank. The idea seemed simple enough. Contribute up to $5000/yearly and the interest earned is tax free. Any contribution room that you don’t use can be added to the next year(s) so even if you don’t put anything in it now, the $5000 contribution allowance will automatically carry forward. I know people who are opening their accounts now, just to get them on paper, and will start regular contributions some time in the future.
So I started to look at them a little closer. There are a few different types, and I don’t pretend to be any sort of financial wizard. (I’ve got the bank statements to prove it!) I didn’t want to get involved with stocks or mutual funds. I wanted a plain vanilla savings account. Something that my simple brain could handle.
RBC TFSA Savings Deposit account. Perfect. Here are the rates.
|Tax-Free Savings Account (TFSA)|
|For investments of||Interest Rate [ % ]|
|$0 to $5,499.99||0.750|
|$5,500 to $24,999.99||0.750|
|$25,000 to $49,999.99||0.750|
|$50,000 to $999,999,999.99||0.750|
Now, getting back to the financial wizard, that I am not… I’m looking at these numbers, and scratching my head. 0.750% That’s less than 1%, right? Why do I have to worry about having to pay taxes on any interest income, when I’m not going to MAKE any income from the interest? And looking at that chart… anyone who has a billion dollars and has it set up in one of these accounts is a complete moron and deserves to have that money taken away from them and redistributed to the little people.. like me!
So I called RBC and asked the representative if I was understanding these numbers properly. Yup. Then I laughed. “Yes, it is laughable,” he told me “but the rate varies, so it will go up at some point.”
That’s encouraging. Although, it might very well go down too.
It costs nothing to set up the account, nothing to maintain it, and only takes a few minutes to set up, so I went ahead anyway. Someday when I have a few hundred million dollars laying around that I want to move into it, I hope that it breaks the 1% barrier!