Tax Free Savings Account - Early Options

In a previous post, I wrote about the new tax-free savings account (TFSA) which will be effective available Jan 1, 2009. To me it’s a no-brainer – you can save money, earn some interest and not pay any tax. Some banks are actually offering an early option, though, where you don’t have to wait until the beginning of the year.

But won’t you have to pay tax on the interest you earn before Dec 31?

For a limited time, some banks are offering to increase the interest paid which should cover the taxes you’ll have to pay on any interest earned. In the case of ING Direct, they’ll double your interest until Dec 31, and then automatically enroll you effective Jan 1, 2009.

I think it’s a great idea to start now. Why wait and lose precious time to earn extra interest? I’m signing up right away! I actually already use ING Direct because they give great interest rates and I don’t have access to my accounts via ATM’s – this means I can’t take out money that easily! I have to go online and request the money back into my main account, which is a great way to force savings.
To summarize, here are a few reasons why I think it’s foolish to miss out on the TFSA and to not sign up early:

• - No taxes! Why pay tax if you don’t have to?
• - You can withdraw money out of your TFSA anytime without having to put it back
• - Starting early is a great way to not forget. I wonder how many people will leave it to February or even later and lose precious tax-free interest?
• - Using an online only option such as ING helps you keep your savings separate without the temptation to run to the bank machine and take it out.

ING isn’t the only bank that is offering this early option. Check with your own bank – I’m sure they’re offering something similar.

At the very least, if you don’t sign up early, make sure you take advantage of the TFSA as soon as 2009 hits.

Related posts:
Tax Free Savings Account