How are Tax Free Savings Accounts different from Plain Savings Accounts?

Savings Accounts are accounts that allow people to keep their money safely while the amount of money earns a small interest per month. A savings account is provided for by commercial banks, mutual savings banks, building societies, credit unions, and savings and loan associations.

                Savings accounts hold different regulations for these accounts to be opened. They can be created by citizens belonging in the legal age bracket, some banks will permit parents to open accounts for their children while some will also consider applicants who will open senior savings accounts in behalf of their relatives.

                A savings account can take a number of forms.  One of these is a Tax Free Savings Account. A Tax Free Savings Account or a TFSA is a tax sheltered account. This means that a contribution limit is set by the state. A Tax Free Savings Account will usually have no limits for withdrawals and deposits just like plain Savings Accounts. However when a contribution limit is set, the amount of what is withdrawn for the year cannot be re-deposited in that year. The amount withdrawn will therefore be added to the initial contribution limit the following year.

A Tax Free Savings Account differs from a Savings Account basically with tax matters. A Tax Free Savings Account will not withheld tax from the account holders when they make withdrawals. These accounts do not provide tax credits to account holders as well.

Another aspect in a Tax Free Savings Account is that it doesn’t require earned income for the account holder to contribute to the account. Unlike savings accounts, an earned income will be needed for continuous financial transactions to the account while a Tax Free Savings Account requires a contribution limit that will deposited in a year.

Tex Free Savings Accounts do not allow for spouse’s to deposit contributions in behalf of their partners. They also do not allow for parents to create accounts on behalf of their children. A TFSA has a secluded characteristic that will permit only the account holder to make contribution and the income earned remains tax free.

One major difference of a Tax Free Savings Account to a Savings Account is that a TFSA will not require for the account to be converted. In Savings Accounts, when a certain age is reached the account will be required to be converted into a “product”. Tax Free Savings Accounts can remain as a savings account until the holder dies. However, the account can also be transferred to the spouse’s, another relative’s account, or a beneficiary.