Can someone explain TFSAs, mutual funds, and high-interest savings accounts?


I’ve been trying to read up on them but it’s just a lot.

So from what I’ve read, I understand a tax-free savings account is a savings account that you don’t have to pay a tax on. I mean the money you contribute would be taxed, but not the interest you make from it? But the interest rates for TFSAs tend to be very low so you don’t get much growth.

A high-interest savings account *is* taxable, but your interest rates are higher so your savings will grow faster, right? I’m not sure which is better in what situation, though.

Mutual funds on the other hand, I just don’t get. I read it’s not the same as buying stocks or shares, but in what way is it different? And in what situation would you want to open a mutual funds account over something like a TFSA or high-interest savings account? Or the other way around? And also, can you put money that isn’t technically yours in a mutual fund, like unused money from a student loan or something?


In: Other

It’s confusing to look at it now because interest rates are at historic lows. So no savings account is going to get you much interest.

A mutual fund is a way to invest in a lot of stocks (and bonds and commodities and other things) all at once. Instead of buying one share of Apple, one of Walmart, one of GE, you buy a few shares of a mutual fund that owns a bunch of shares. When those stocks go up, the value of each share of the mutual fund goes up by the same amount, and vice versa.

In terms of where you should put your money, it depends on how soon you need it.

If you want money for your retirement, you should first try to use your company’s 401k, 403b, or an IRA. That gives you tax benefits. Retirement accounts let you choose how to invest the money, it’s common to invest heavily in stocks when you’re young, and in safe bonds when you’re older.

If you have money to invest long-term (10 – 20 years old) but not for retirement, use the sames strategy: invest in mostly stocks now, then slowly rebalance to hold mostly bonds. Stocks experience the most growth over the long term, but they’re the most risky in the short term.

High-interest savings accounts, CDs, and bonds are all good options for money you want to invest in the short term. The interest rates aren’t good now, but they’re better than nothing.