RESP vs TFSA: Which One Should You Choose?

When it comes to figuring out how to save for your child’s post-secondary education, you have a few options. Your friends may suggest that you take a look at a Registered Education Savings Plan (RESP), a Tax-Free Savings account, or general savings account. But how do you know which is best?

Let’s take a look at how each works and find out whether a RESP vs TFSA is better suited for your needs!

What is a Registered Education Savings Plan (RESP)?: Understanding the Basics

A registered education savings plan (RESP) is an account specifically designed to help you save for your child’s education. It can be opened for your child as soon as they have a social insurance number, and you can save up to a lifetime contribution limit of $50,000 per beneficiary into the registered account.

Just like TFSAs, RESPs can hold investments and money. All income generated within a plan is considered your investment income, making it tax-advantaged and tax deferred. This means that you only pay taxes when withdrawing your funds, and even when you do, it’s under your child’s bracket. Because students typically fall under a lower tax bracket during the time they are triggering little-to-no taxes if put towards their education.

Canadian Government Grants

One of the main advantages of opening a RESP is that it’s eligible for government grant money. Off the bat, the government will match 20% of the first $2,500 you put into your RESP every year, giving you up to a maximum of $7,200 over the lifetime limit of your RESP, regardless of your family’s income.

Depending on your household income and the province you live in, you may also be eligible for even more grants from provincial and federal government grants, like:

Canada Education Savings Grant (CESG)

The Canada Education Savings Grant (CESG) will provide grant money to your RESP between 20 and 40 percent, based on your RESP contributions. The maximum annual top up is $600, while the lifetime limit is $7,200.

Quebec Education Savings Incentive

The Quebec Education Savings Incentive is a grant available to families living in Quebec. This RESP grant will match what you contribute to an RESP by 10%, up to $3,600 per beneficiary.

British Columbia Training & Education Savings Grant

The BC Training and Education Savings Grant is available to those living in British Columbia. This grant provides qualifying children between the ages of 6 and 9 with $1,200 toward their education.

Canada Learning Bond (CIB)

The Canada Learning Bond (CIB) is specifically tailored to help low-income families by offering $2,000 towards your child’s education.

So, what happens if your child decides they don’t want to go to school or choose a non-qualifying program? Should your child not pursue a post-secondary education, you can either transfer the funds to one or more beneficiaries, put it towards your registered retirement savings plan (RRSP) if you have unused room left in your annual contribution to get a tax deduction, or withdraw money from your investment income as a Accumulated Income Payment (AIP).

When withdrawn, the accumulated investment income you’ve generated over the years will be taxed at your province’s marginal tax rate, plus an additional 20% tax penalty. Note that any grants and grant income contributed to an RESP will always be clawed back by the government if they’re not used during your child’s education journey.

Refer to our article for more information about what interest rates are in Canada.

RESP Pros and Cons at a Glance

Pros

• Can use as an investment account to grow savings
• Earnings are taxed in your child’s hands when withdrawn, often resulting in little-to-no tax
• Eligible for substantial added savings through applicable federal and provincial grants

Cons

• Meant solely for education savings
• Withdrawals subject to Canadian Income Tax Act requirements

What is a Tax-Free Savings Account (TFSA)?: Understanding the Basics

A tax-free savings account (TFSA) is a valuable tool to help families build wealth and grow their savings. Despite its name, which often deceives many Canadians, a TFSA is so much more than a standard savings account; its true value is unlocked when using it to hold stocks and bonds.

As of this year (2025), you can contribute money with a lifetime contribution limit of $88,000 into a TFSA if you were 18 or older in 2009, and the money you make off your Canadian investments within it is considered tax-free. The annual contribution limit for a TFSA as of 2024 is $7,000.

There’s a string attached to this feature though: while your earnings are not taxable as capital gains, in the same vein, you cannot declare capital losses in a TFSA for tax purposes. This typically makes the account ideal for stable Canadian investment products and holdings. Further, fees for TFSAs can typically range depending on the provider, amount saved and whether the account is managed or self-directed.

The main drawback to using a TFSA for your education savings is it’s not eligible for educational grants from the government. Grants can often have rather substantial effects on your education savings, giving you an automatic 20% on $36,000 when strategically contributed to trigger the maximum payout.

A child is also only eligible to start a tax-free savings account at a minimum age of 18 and will have significantly less contribution room when first starting. This means the majority of savings would have to come from your contribution room, which could be used for other things and may not be a convenient way of saving if you’re not the child’s parent.

While you are eligible to withdraw as much as you want, when you want, doing so forfeits that contribution room for the rest of the year as well.

TFSA Pros and Cons at a Glance

Pros

• Can use as an investment growth account to grow savings
• Investment income earned is tax-free
• TFSA Contribution limits of $88,000 if born before 1991
• Unlimited withdrawals at any amount

Cons

• Not eligible for government education grants
• Beneficiary qualifies to open a registered account when they are a minimum age of 18

Saving with a Savings Account

Pros

• Your principal is guaranteed

Cons

• Funds are not invested, significantly affecting growth potential
• Not eligible for government education grants
• Interest income is taxable

One of the easiest ways to save for anything is through a traditional savings account. The idea is simple: you put money into the account and watch it grow as you continue to add to it.

When parking your money in a savings account, the account provider will often pay you a small amount of interest to use the funds. This can typically range anywhere from 0.01% to 2% annually, depending on the provider, amount saved and type of account.

There is no limit to how much you can deposit into a savings account, and your savings will typically be insured up to $100,000 by the Canadian Deposit Insurance Corporation.

Fees for the account will vary, depending on the provider, amount saved and how you use it.

The main drawbacks to using a standard savings account to build your education savings are it’s not eligible for government education grants and you often miss out on a lot of growth that you otherwise would enjoy through investing your money. You are also taxed on the money you do make off interest.

RESP vs TFSA: Key Differences in Contributions and Withdrawals

Here’s a look at the key differences between these two accounts:

Features	RESP	TFSA
Contribution Limit	Lifetime contribution limit of $50,000 per beneficiary.	Annual limit of $7,000 with lifetime limit of $88,000 if you were born before 1991.
Tax Benefits	Contributions grow tax-free, eligible for government grants.	Contributions grow tax free, no government grant eligibility.
Withdrawals	Must be used toward the child’s education, non-educational withdrawals, Education Assistance Payments are taxed in the student’s tax bracket.	Can be used for anything and withdrawals are tax-free.
Tax Treatment on Withdrawals	Contributions can be withdrawn tax-free, EAPs (grants and investment earnings) are taxed as income,	All withdrawals are tax-free.
Flexibility	Must be used towards child’s education, otherwise withdrawals are taxed at marginal tax rate plus an additional 20%	No restrictions on withdrawn money or how it is used.

Which Savings Plan Is Best for Education and Future Savings?

While each savings vehicle certainly has its benefits, and there is no one-size-fits-all approach to financial planning, we believe RESPs are the true leader in education savings.

No other investment vehicle gives you access to thousands of dollars in federal and provincial government grants, and when coupled with its tax-advantaged properties, RESPs make a very strong case to be an integral component of any education journey. Families looking to save for their child’s education should prioritize an RESP, as government grant money offers tax-deferred growth, which can maximize your long-term savings.

That said, a TFSA may be the better option for families who want more flexibility when it comes to their money. Unlike an RESP, TFSA funds can be withdrawn at any time, tax-free, and used for any purpose. This, ultimately, makes your long-term savings ideal for education, and more, like a down payment on a home.

Families can also benefit from using both accounts strategically. For example, families can contribute to an RESP to take advantage of government grant money, while also putting money away in a TFSA for non-educational purposes, in case your children don’t end up pursuing post-secondary education.

When in doubt, speak with your financial advisor about your savings goals and for more information.

FAQs

What happens if I contribute to both an RESP and a TFSA?

Contributing to both an RESP and TFSA can benefit families looking to save for their child’s future education and other long-term goals.

Can I withdraw from an RESP and transfer the funds to a TFSA?

No, you cannot transfer funds from an RESP to your TFSA as both accounts have rules and restrictions that disallow this type of transfer. You can, however, make an RESP transfer to an RRSP.

Can I open both an RESP and a TFSA for the same beneficiary?

Yes, you can open a RESP as soon as your child has a social security number. However, you’ll need to wait until your child turns 18 to open a TFSA in their name.