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Why Is My TFSA Losing Money?

Whether investing or saving towards your dream car, a TFSA can benefit almost anyone. This savings account can help your finances in several ways, but you may notice you’ve lost money in your TFSA. When your TFSA takes a hit, what’s causing this loss?

Continue reading to learn more about TFSAs, including how they work and why you may lose money.

Drawing of four stacks of coins with declining height with a declining arrow above them.

What Is a TFSA?

A tax-free savings account (TFSA) helps Canadians store money tax-free for the long term. Beginning in 2009, anyone over 18 with a valid SIN (social insurance number) can contribute after-tax dollars (money already taxed) to their TFSA.

You have a certain amount of funds you can contribute to your TFSA every year, and unused amounts carry over with time, as far back as 2009 (when the program began) or when you turned 18. Your contributions are always available, so it’s never too late to utilize your TFSA.

Your total TFSA contribution room is the combination of the following:

  • The TFSA dollar limit for the current year

  • Any unused TFSA contribution room from previous years

  • Any withdrawals made from the TFSA in the past year

What Do You Use a TFSA For?

You can use a TFSA for whatever you want, whether saving up for a car, retirement, wedding, house, education, or vacation. Because of how versatile a TFSA can be, many people can benefit from owning one.

You can withdraw money from your TFSA whenever you want or need it. However, there are particular rules related to re-contributing any removed funds.

How Do You Open a TFSA?

Overall, it’s simple to open a TFSA, and you can have more than one at a time. You must contact your bank, credit union, or insurance company and provide them with your SIN and date of birth. They can then register you for a TFSA but may ask for more information if necessary.

How Does a TFSA Work?

Any contributions you make to your TFSA aren’t deductible on your taxes, meaning it doesn’t reduce the amount you have to pay. While TFSAs are technically called savings accounts, many people use them for investment purposes to earn (typically) untaxed money.

You can have several types of investments in your TFSA, including the following:

You control your savings, meaning you can contribute or withdraw money whenever, without any financial consequences. However, withdrawing funds from your TFSA affects your contribution limit for the short term.

You gain more contribution room in your TFSA when you remove money, but this room isn’t available immediately. You must wait until the beginning of the following year to re-contribute the amount from your account.

While many people use TFSAs to help save money, how can you lose money using this savings account?

A chart showing a row of red candle sticks.

Why Is Your TFSA Losing Money?

If you’re using your TFSA to invest, it’s possible to lose money in your account. You can lose money due to a poor investment or withdraw your funds during a downturn in the market.

According to the Government of Canada, a loss in your original investment is possible. Losing your original investment depends on the type of investment you make. The loss doesn’t count as a withdrawal from your account.

If you use your TFSA for risky or bold investments, you may lose some of your initial cash. Another possible cause of money loss in your TFSA is withdrawing during a downturn, whether necessary or not.

Sometimes, markets can trend down and affect your investments, leading to overall losses. However, markets tend to rise again with time. If you have a well-built portfolio, your investments should recover, but you may get the urge to cut your losses too early.

Initial losses may cause someone to sell their investments and lose the money in their TFSA. If you suffer losses in your investment but need the money from your TFSA, you may sacrifice your original investment to cover your daily necessities.

Financial Help Can Keep Your TFSA in Check

While you can lose money in your TFSA, it’s typically avoidable with diligent financial decisions. Investing can be confusing and seem complicated, but you can make it easier by seeking financial help. Working with an expert can benefit your TFSA, helping you save for your future, whatever your goals are.

Contact your local financial expert if you’re interested in investing with your TFSA. They can teach you everything you need to know about TFSAs and how you can boost your savings.

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