Oaken Financial | Financial Crooks

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.

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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.

We are saving again, this time to replace the roof and furnace sometime in the next two to three years. This is money in addition to our emergency fund: although if the furnace conked out or the shingles blew off, it might be an emergency but the spending to replace both is really a planned expense. Our emergency fund is largely at Oaken Financial in a series of GICs, one of which matures each month ready to cover our budget if we suddenly have no income. This planned expense money, though, could be saved any where. So I decided to shop around and see where I could get a high interest rate for our cash in a no fee daily interest savings account.

Today’s Interest Rate Offers for No Fee Savings Accounts

Here are the rates I found for regular no-fee savings accounts on January 9 2017:

EQ Bank 2%
Alterna Bank 1.95% *
Oaken Financial 1.5%
Tangerine 0.8%
PC Financial 0.8%

* I haven’t used Alterna Bank so I’m not aware of all the details of their business. You can read about them on the RedFlagDeals personal finance forum. They are CDIC insured which is very important to me for any eBank.

What Special Short Term Promotional Rates Are Offered for Savings in January 2017?

There are some promotions going on.

Tangerine is offering

certain customers up to 3.25% on their savings from January 5 – March 31 2017. But it’s not offering the rate to everyone and there isn’t much information on why some people are getting the higher rate.
2% to some customers who phone in and request the higher rate, if they threaten to transfer out large balances, offer to transfer in large balances, or ask based on high usage of Tangerine products such as paying bills and having a mortgage. Not all customers who ask get the higher rate.
1.9% for the first six months to customers opening their first account ever with Tangerine or ING Direct Canada who open only a Savings account
2.4% for the first six months to customers opening their first account ever with Tangerine or ING Direct Canada who open both a Savings and a Chequing account

Could they make this any more confusing?!

PC Financial is offering some customers 1.5% on their savings from January 1 – March 31, 2017. It is not offering that rate to everyone and there isn’t much info on how to get this higher rate.

It’s Tricky to Get the Best Rate for Your Savings Account

The problem is that several of the major e-Banks like Tangerine and PC Financial have switched to offering short-term promotional higher interest rates and only to some customers.

For example, right now, I have an offer from January 5-March 31 2017 from Tangerine for 3.25% on my savings account deposits. My husband, however, has no special offer from Tangerine! He did get offered 1.5% from PC financial for those three months, though.

Some of the Big 5 Canadian Banks (BMO, CIBC, RBC, Scotia, and TD) also come out with short-term higher rates, often linked with opening a new account. Because these are not, generally, no fee accounts, I’m not including them here. A few fees can quickly use up any additional money earned in interest payments!

Where Should I Park My Cash for Three to Six Months While I Wait To Buy My House?

This question gets asked a lot. If you’ve got less than a year until you’re going to buy your home, even though interest rates are painfully low, you’d do better to keep your cash in a savings account. A cashable GIC is unlikely to offer you a better rate and a regular GIC cannot be cashed until it matures. Yes, it would be great to make thousands of dollars by investing in rising stocks but it would be horrible to lose thousands if stocks drop and you have no way of predicting which way they will go.

If you are going to keep your cash in a savings account, though, make sure you get as much interest as you can. It will be taxable but it will still help reduce the impact of inflation on your savings. If your savings are large, be willing to spend an hour or two opening new no-fee bank accounts, if necessary, to get a significantly better rate.

I Don’t Want to Open a Bunch of Bank Accounts: Where Can I Put My Money and Leave It at a Good Rate?

Many people don’t want a series of bank accounts. It’s just too much hassle to open them and to keep track of them.

For those people I’d suggest considering

A local credit union, if one has a good long-lasting rate
Oaken Financial, which has been keeping its savings rate steady for a long period of time
EQ Bank, which is currently the highest rate of the e-Banks that doesn’t offer different rates to different customers when they phone in, but which has dropped its rate twice in 2016 without much forewarning

I wouldn’t suggest Tangerine or PC Financial unless you want both your savings and your chequing accounts at the same bank. Both of these two like to only offer a low regular interest rate, which is 0.8% on January 9 2017, and then offer promotional rates to only some customers for 3-6 months at a time. If you only want a savings account, and you don’t want to track whether you’re maximizing your interest rate by phoning in for promotions, I would stick with a credit union, Oaken or EQ.

What are these paying today, January 9 2017?

Oaken Financial: 1.5%
EQ Bank: 2%
Credit Unions: Vary

What Am I Doing With Our Roof Fund?

Well, since right now I can get 3.25% at Tangerine until the end of March 2017, that’s where the roof money will be parked. What I’ll do in April, though, is hard to say!

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Have you found a good spot to park your cash? Please share your views with a comment.

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What Could or Should a Teenager Do to Invest in a Tax Free Savings Account, TFSA?