TFSA, RRSP or FHSA? Where to save your first dollar in Canada

The short answer: the 2026 TFSA annual limit is $7,000; the RRSP limit is 18% of your earned income from the previous year, up to a maximum of $33,810; and the FHSA gives you $8,000 in the year you open it, with a lifetime limit of $40,000. If you have just arrived in Canada, you will usually start with a TFSA, because its room opens up from your first year of residence, whereas an RRSP needs Canadian income from a previous year.

This guide doesn't tell you what to buy inside the account; it explains which "container" to put your money in first, and why.

The three accounts in one table

The core difference between the three accounts comes down to two questions: can you deduct the contribution from your taxable income today, and do you pay tax when you withdraw later?

TFSA: why most newcomers start here

A tax-free savings account (TFSA) gives you no tax deduction when you contribute, but everything that grows inside it, interest and gains alike, is tax-free, and you pay nothing when you withdraw. Changes in the value of your investments inside it don't affect your available contribution room.

When does your room start if you've just arrived?

This is the most common mistake among newcomers. Many people think they have room accumulated since the account was launched in 2009. In fact, room only starts accumulating from the day you become a resident of Canada, if you are 18 or older, and you don't get the limits for years when you weren't resident.

The Canada Revenue Agency (CRA) gives the example of someone who became resident in 2024: their available room that year was only $7,000, the 2024 limit alone. By the same logic, if you became resident in 2024 and haven't contributed anything yet, your room in 2026 is $21,000: seven thousand each for 2024, 2025 and 2026.

Two rules that keep you clear of penalties

• A withdrawal doesn't restore your room right away. If you withdraw an amount, you get that room back on 1 January of the following year, not the same day. Putting the money back in the same year can push you over your limit.
• Over-contributing is expensive. A tax of 1% per month applies to the highest excess amount in your account for each month it stays there.

A TFSA can hold cash, mutual funds, securities listed on a designated stock exchange, guaranteed investment certificates (GICs) and bonds. In other words, it isn't necessarily a "savings account"; what you put inside it is your decision.

RRSP: when does the tax deduction pay off?

A registered retirement savings plan (RRSP) works the opposite way to a TFSA: you deduct the contribution from your income today, lowering this year's tax, and then pay tax later when you withdraw, since withdrawals are generally treated as taxable income.

The 18% rule, and why your room starts at zero

Your deduction limit is calculated like this: unused room from previous years, plus the lesser of 18% of your previous year's earned income and the annual maximum, minus any pension adjustments from an employer plan.

Example: if your 2025 earned income was $60,000, 18% of that is $10,800, which is below the 2026 maximum, so that is your new room for 2026 before any adjustments.

So if 2026 is your first year in Canada and you had no earned income reported in Canada for 2025, your RRSP room is most likely small or zero. Don't guess the exact figure: you'll find it on the Notice of Assessment you receive after filing your tax return, and in your CRA online account.

What to know before you contribute

• Unused room carries forward to future years indefinitely, so you don't lose it if you don't contribute this year.
• You can contribute until 31 December of the year you turn 71.
• If you go more than $2,000 over your limit, you pay a tax of 1% per month on the excess.
• Withdrawals before retirement are generally added to your income, with specific exceptions such as the Home Buyers' Plan (HBP) and the Lifelong Learning Plan (LLP).

FHSA: the account built for your first home

The first home savings account (FHSA) combines the advantages of the other two: contributions are usually deductible from your income, like an RRSP, and a qualifying withdrawal to buy a first home is tax-free, like a TFSA. But its conditions are narrower.

Who can open one?

• You are a resident of Canada.
• You are at least 18 (19 in some provinces), and no older than 71 on 31 December of the year you open it.
• You are a "first-time home buyer": you have not lived, as your principal residence, in a home owned by you or your spouse during the current year or the previous four calendar years.

Note that this refers to a home in Canada: the official definition of a qualifying home refers to housing located in Canada. If you own a home in your country of origin, read the full definition on the CRA's page or ask an accountant before opening the account.

The numbers, and the "open it early" rule

Your room in the year you open the account is $8,000. Anything you don't use carries forward to the following year, up to a maximum of $8,000, and the lifetime total is $40,000.

The key point: room only starts once the account is open. Opening it today with a small amount starts the clock, while waiting until "the money is there" costs you a full year of room. You also need to complete Schedule 15 with your tax return for the year you open it, even if you didn't contribute anything.

The account must be closed by 31 December of the year in which the earliest of these events happens: the 15th anniversary of opening your first FHSA, turning 71, or the year after your first qualifying withdrawal. You can also postpone claiming the deduction for your contributions to a later year when your income is higher.

Which one should you choose, based on your income and situation?

There's no single answer for everyone, but the logic follows three variables: whether you have room at all, whether your current income is high or low, and whether you plan to buy a home.

A practical rule before any account: a cash emergency fund covering several months of your essential expenses. If you're not sure what your real monthly expenses are, start with the budget tool, and work out what actually lands in your account after deductions with the net salary calculator, because savings are built on net pay, not gross. Why the two figures differ is explained in the gross vs net salary guide.

Interest-free and Sharia-compliant saving inside these accounts

All three accounts are tax containers, not investment products. The account itself doesn't decide whether your money earns interest or is invested in shares or funds; you decide what goes inside it, within the permitted investments.

So if you avoid interest, you can open a TFSA or FHSA and choose investments inside it that fit your beliefs, such as funds or listed securities that apply Sharia screening criteria. Before choosing, ask three questions: who issues the Sharia certification? What are the annual fees? And is the product actually available inside the type of account you opened with your institution?

We don't recommend any product or provider here, and we don't issue religious rulings on them. Leaving money as cash with no return inside a TFSA is also a legitimate option, and it keeps your room available until you decide.

Mistakes that cost newcomers money

1. Counting TFSA room from 2009. Your room starts from your year of residence only.
2. Withdrawing and then re-contributing in the same year. Withdrawn room comes back the following 1 January.
3. Contributing to an RRSP before your first tax return. Confirm your room on your Notice of Assessment first.
4. Putting off opening an FHSA. Room doesn't start before the account is open, so every year of delay loses you a year.
5. Opening accounts at several institutions without keeping track. You have one limit however many accounts you hold, and any excess is your responsibility.

If your taxes are complicated, such as income from abroad, self-employment or property in your country of origin, a licensed accountant can save you from costly mistakes; you'll find accountants in the business directory: accountants. To put the rest of your financial steps in order from arrival, go back to My Canada journey and the first weeks guide.

And if you plan to buy a home, the bank will look at your credit history before any mortgage; start building it early with the guide to building a credit score from scratch.

Frequently asked questions

I arrived in Canada in 2026. How much can I put in a TFSA?

If you are 18 or older and have a valid Social Insurance Number (SIN), your room for 2026 is that year's limit alone: $7,000. Then $7,000, or whatever amount the government sets, is added on 1 January of each later year in which you are resident.

Can I open an RRSP in my first year?

You can open the account, but your deduction room depends on your earned income in the previous year. If you had no Canadian income reported that year, your room is usually zero or close to it. Check the figure on your Notice of Assessment.

Do I lose TFSA room if I don't use it?

No. Unused room accumulates and carries forward to future years.

I own a home in my country of origin. Am I eligible for an FHSA?

The official definition of a qualifying home refers to housing in Canada, but how it applies to your case is worth checking on the official page or with an accountant before you open the account.

What if I contribute more than my limit by mistake?

In a TFSA, you pay 1% per month on the highest excess amount until you withdraw it or your room grows. In an RRSP, the same tax applies to amounts more than $2,000 over your limit. The quickest fix is usually to withdraw the excess right away.

This guide is general information from official sources, not personal financial or tax advice; consult a licensed professional before making any decision about your own situation.

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