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My teenaged relative who has his first job and his first no-fee chequing account for direct deposit of his pay will soon be eligible to open his first TFSA as well. I doubt very much that he will listen to me or even ask me what type of TFSA he should consider but I’ll write this down now just in case he reads my website. (Not likely!) So here are some suggestions for how a teenager could or should be use a Tax Free Savings Account, or TFSA.

Everyone Needs Some Cash Savings For Emergencies

Recently on RedFlagDeals, someone asked who would ever pay $20 to borrow $300 or use one of the many payday loan sharks ***. Many people added their opinions including one person who said it’s very easy to end up too short of cash to handle a $300 emergency. That led to even more comments.

Basically, it’s true that if at all humanly possible you should try to have some cash savings for emergencies. Life happens. Often.

This morning, my car started making an odd faint squealing noise when making certain turns. It could need new brakes. It could need a wheel alignment. It could be nothing. Just getting it checked out will likely cost close to that fictitious $300 much less getting any needed work done. The zipper on my child’s boot broke, too. And there’s a draft around the front door suggesting we need to replace either the caulking or the weather-stripping or both. Rent goes up. Bell just jacked up the rates for the internet again.

So my first suggestion for a teenager who is now eligible to open their first TFSA, at 18 in most provinces and 19 in some, is to save up your first $5500 in cash.

(If a teenager already has more than $5500 in cash savings, they should read ahead: higher earning investments should be sheltered in the TFSA and emergency cash can be kept in a regular non-registered savings account.)

Where Should I Keep My Cash TFSA Account?

Banks both like and dislike TFSA cash savings accounts. They have figured out that they can charge you a painful transfer out fee if you decide to move your cash from their TFSA to another bank’s TFSA. They set those transfer out fees so high that you lose any yearly profit if you move a small balance to try to get a better interest rate somewhere else.

Banks dislike these accounts, though, because you can get around the transfer out fee once a year. If you get fed up with the interest rate at your bank, you can withdraw your TFSA cash during the last few business days in December. Then, in January of the next year, you can deposit it elsewhere. (You can’t deposit it right away in December if you have already made your maximum allowable contribution to your TFSA. But the amount withdrawn in previous years gets added to your contribution room for future years so you can re-deposit the same amount in January as it is the beginning of the next year.)

Check details of any bank TFSA carefully before opening an account. Some might charge you if your TFSA balance drops to or nearly to, 0, or if you close your account. That could make it expensive to move your TFSA cash to another bank for a better interest rate.

OK, so where are some reasonable places to keep your emergency cash in a daily interest TFSA savings account?

Many credit unions offer reasonable interest rates and rules
Tangerine. It offers, as of February 2017, 0.8% a year on cash savings in a TFSA, sometimes with a month or two of higher interest for new contributions. Tangerine charges a $45 fee (as of February 2017) to transfer your cash out of your TFSA to another bank. You can withdraw it for free but you can’t contribute it elsewhere until the next January 1, unless you have enough remaining unused contribution room.
PC Financial. It offers, as of February 2017, 0.8% a year on cash savings in a TFSA, sometimes with a month or two of higher interest for new contributions. PC Financial charges a $50 fee to transfer your cash out of your TFSA to another bank. You can withdraw it for free but you can’t contribute it elsewhere until the next January 1, unless you have enough remaining unused contribution room.

Oaken Financial offers, as of February 2017, TFSA GICs but not a TFSA cash savings account. If you don’t mind locking up your money in a GIC for at least 12 months, they offer good rates. In February, 2017, they are offering 1.75% for a one year GIC. NOTE: You can NOT get your money out until the GIC matures one year after you purchase it. This is not a “cashable” GIC.

If I Don’t Pay Any Tax Why Bother With a TFSA?

Many teenagers don’t earn enough money to pay any income tax. That can make it seem pointless to keep their cash in a TFSA. Any interest they earn on their cash in a regular savings account is also “tax free” if their combined income from work, interest and any other sources of income is less than their deductions including the basic personal amount.
I’d still suggest opening a TFSA.

If you set aside your “emergency” money in the TFSA it may reduce the urge to spend it on regular entertainment expenses.

It can also be the beginning of longer-term savings strategy.

You can always withdraw cash from a savings account TFSA as long as you remember you cannot always put it back in until the following January 1. So if you get a great interest rate offer on your regular savings account, you could always pull the cash out of your TFSA and take advantage of that rate.

It usually doesn’t take long to start earning enough to have to pay tax. When you do, be sure to start a TFSA.

When Should I Start Investing in a TFSA?

A cash daily interest savings account TFSA is useful when you only have $5000 or so saved. But when you start to save more than that, it’s time to consider investing some of your money while saving the rest. I’ll describe one strategy for investing in a TFSA in the sequel to this article.

Related Reading

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When did you open your first TFSA? Would you encourage a teenager to open one as soon as they turn 18 (or 19)? Please share your views with a comment.

I set up my Tangerine Savings Account, over 7 years ago when it was called an ING Direct Investment Savings Account, and I linked it to my regular chequing account at a Big Canadian Bank. Recently, I decided to link it to a joint chequing account my husband and I have at a different Big Canadian Bank. I want to be able to move my money overnight from the Big Bank to the Tangerine account even though they will put a hold on the money once it lands at Tangerine. I could move the money by writing a cheque on the joint account and using the Cheque-In photo deposit app to cash it into my Tangerine Chequing Account. But I’d prefer not to waste a paper cheque, since the Big Bank charges us for each paper cheque even if it doesn’t charge us to use one. And I’d prefer the money to go straight to my savings not route through the Tangerine chequing account. So today I decided to connect my Tangerine Savings Account to this joint chequing account at the Big Bank.

How Many Bank Accounts at Other Big Banks Can I Link to my Tangerine Account?

According to the Tangerine website as of June 2014, you can link your account to up to 3 bank accounts at other financial institutions.

I know that there are many bargain hunters who link to PC Financial and periodically transfer all their savings from one to the other to benefit from short-term-interest-rate bonus incentives. Personally, I haven’t bothered with that. Yet. ; )

What Info Do I Need to Link my Bank Account to Tangerine?

For your account at a Big Canadian Bank (or other financial institution) you’ll need to know

the transit number
the bank number
the account number
whether it’s a US or Canadian dollar account

What’s my Bank Number?

Well, if you have a chequing account this is easy to check. (Pun intended.)

At the bottom of your cheque is a serious of odd marks with numbers between them. If you squint at them for a while, you’ll realize that near the beginning 5 of them are your bank account’s transit number. Then there is an odd dash that is divided up into a few segments. Then there is a 3-digit number. That’s your Bank Number. Then there’s another symbol, mine looks like neutral Smiley face. Then there is your bank account number.

In this ING Direct cheque, the transit number is 00152 and the bank number is 614. (You didn’t really think I was going to include my account number too, did you?)

If you don’t have a chequing account, or if you can’t decipher your cheque, you can
ask your bank what its Bank Number is; or
check online lists.

Common Bank Numbers in Canada

Some common Banks have the following Bank Numbers:

Bank of Montreal: 001
The Bank of Nova Scotia: 002
Canadian Imperial Bank of Commerce: 010
Royal Bank of Canada: 003
The Toronto-Dominion Bank: 004

You can see that either BMO invented these numbers or that CIBC was a very late arrival on the Canadian banking scene when it started as the Canadian Bank of Commerce in 1867.

Do I Need to Send in a Cheque to Link to my Tangerine Account?

No.

You don’t need to send in a cheque to link an account if you already have your Tangerine account set up BEFORE you try to make this connection.

For example, when I first opened my Tangerine Savings account I sent in a cheque from my Big Bank chequing account to link the two. Now, though, I am linking to a different account at a different Big Bank without sending in a cheque.

Linking a Tangerine Savings Account to a Big Bank Joint Chequing Account

Sign In to Tangerine

Open your browser and go to www.tangerine.ca
Click on the link: I’m a Client, let me in!
Type the appropriate info in the Enter your Client Number, Card Number or Username text field.
Never click to select Remember me. Why would you want to give a criminal half of the info they need to break into your account?!
Click on the Go button.
Type the answer to your secret question in the Answer text field.
Click on the Next button.
Type your PIN in the Personal Identification Number text field.
Click on the Go button.

Add the New Account to Your List of External Accounts

UPDATE: October 1, 2017. Tangerine has revised its website, so I’ll have to revise my procedures!

Click on your abbreviated name at the top right side of the screen.
Click on Profile & Settings.
From the links across the top of the Profile & Settings page, click on: External Accounts.
Your existing account links are displayed.
If, like me, you already have 3 accounts linked you cannot add another! Fortunately, I have an account linked which I do not need any more. So I will permanently remove that link. To remove the link, I will click on the Delete button for that line.I read the warning about possibly breaking an Pending Transfers. Then clicked on the Delete button again. A confirmation message is given with the Transit and Account numbers but not the Institution number. Weird. I clicked on the Done button.
Click on the button Add account button.

The Add External Account Page

Read through the information.
If you’re willing to go ahead
- Type the transit number for your Big Bank account in the text field: Transit number
- Type the number for your Big Bank or Credit Union etc, in the text field: Institution Number (yes, this time they capitalized Number)
- Type the account number for your Big Bank or Credit Union etc. account in the text field : Account Number
- Type the account number for your Big Bank or Credit Union etc. account in the text field: Re-enter Account Number to Confirm
- Ensure the correct currency, Canadian or US dollars, is selected for that external bank account.
Click to select the box beside the statement “I confirm that the information provided above is for a personal bank account in my name” if and only if you are trying to link to your own personal account and not that of a friend, relative, business or other entity. You cannot use this page to link to anyone’s account except your own personal account.
Click on the Next button.

The Review the External Account Information Page
Cool!

A pop-up window lists the bank name and address for our joint chequing account at the Big Bank. It’s correct too!

If the details are correct, click the Submit button.

The Account Added Page

Read the info.

Basically it says sometime in the next two business days, Tangerine will deposit two small amounts of money into my external/Big Bank bank account. I have to write down those amounts, then log in to Tangerine and report what they were. If I get it right, they will finalize connecting the two accounts. (This is what Google does too, when you tell them where to deposit your pay from AdSense.)

Click on the Done button.

I can also see that beside the listing for my Big Bank account, which has been added to my list of external accounts, there is a Cancel button.

It should switch to a Confirm button after they have sent me the deposits. I’ll need it after they deposit the money in my account.

For now, though, I’m done.

Sign Out of Tangerine Safely

If you have no other banking, under your abbreviated name, click on the Log Out link.
For increased security, clear your browser cache and close your browser session.

Check Your Email Alerts

I received an email notification that I had requested to add a link to a new external bank account.

Start Checking and Waiting (Beware: Sexist Content Included)

Start checking your Big Bank or Credit Union etc bank balance hourly to see if Tangerine has made the two test deposits yet.

Note: realistically the deposits will be credited when your account file is updated overnight. So you only need to check once per day. If they are not there yet, they won’t be until at least the next day.

As one of my more annoying teachers in Grade 8 used to say: “Patience is a virtue; possess it if you can; found seldom in a woman; and never in a man.”

How’s that for sexist! And it was a He who kept quoting this.