This article may contain references to products or services from one or more of our advertisers or partners. We may receive compensation when you click on links to those products or services. Nonetheless, our opinions are our own.
The information presented in this article is accurate to the best of our knowledge at the time of publication. However, information is subject to change, and no guarantees are made about the continued accuracy or completeness of this content after its publication date.
Ever wondered if the interest you earn on your savings account is taxable? The short answer is: yes, it is. But don’t worry—we’re here to break down how it works and share what you can do to avoid saving account tax.
How is a savings account taxed in Canada?
The interest you earn from your traditional savings account gets added to your total taxable income when you file your tax return. How much tax you pay depends on your tax bracket, which is based on your total income.
For example, if you earned $75,000 from your job and $500 in interest from your savings account, your taxable income for the year would be $75,500.
The interest you earn from a savings account is taxed just like your regular income, at your income tax rate for the year. It’s added to your total earnings and taxed along with everything else.
How to report interest on your Canadian taxes
Fortunately, it’s easy to report your interest income on your taxes each year. If you’ve earned interest in your savings account, your financial institution will provide you with a T5 form to report it on your tax return. The T5 form is a statement of investment income that lists the interest, dividends, and other investment income you earned during the year. You can usually find it by logging into your savings account or your CRA account. Keep in mind that you’ll only receive a T5 form if you’ve earned at least $50 in interest.
If you live in Quebec and earn $50 or more in interest, you’ll also get an RL-3 form, which is your investment income form for provincial taxes for that tax year. You’ll use the RL-3 for your Quebec tax return and the T5 for your federal tax return.
Keep in mind that while the interest you earn on a savings account is taxable, you’re not taxed on the entire balance in your account. The money you originally deposited has already been taxed.
For example, if you put $5,000 into your savings account and earn 0.02% interest for 12 months, you’ll only pay taxes on the $100 in interest the bank pays you for that year, not the $5,000 principal amount. It’s just the earnings that are taxable.
How to reduce taxes on your savings account
The CRA treats the interest you earn in a traditional savings account as part of your taxable income, which means you’ll need to pay taxes on anything over $50. Even if you move money from your savings account to a tax-sheltered account, you’ll still owe taxes on the interest if it was earned in a non-tax-sheltered account.
However, if you’re looking to avoid paying taxes on your savings, consider opening a Tax-Free Savings Account (TFSA). With a TFSA, any interest you earn is tax-sheltered, so you won’t pay taxes when the interest is earned or when you withdraw the money. It’s a great option for growing your savings tax-free!
Voted "Best Overall Budgeting App" by Forbes and WSJ
Monarch Money helps you budget, track spending, set goals, and plan your financial future—all in one app.
Get 50% OFF your first year with code MONARCHVIP
What is a TFSA?
A Tax-Free Savings Account (TFSA) is a registered, tax-advantaged account that lets you grow your savings without paying taxes on the earnings. Whether you’re saving for your dream wedding, your first home, or just building an emergency fund, a TFSA can help you reach your goals faster.
With a TFSA, you can hold qualified investments along with cash, like bonds, stocks, guaranteed investment certificates (GICs), and mutual funds. The best part? You can withdraw your contributions, along with any interest, capital gains, or dividends you’ve earned, anytime—tax-free. Plus, you don’t need to report these withdrawals as income when you file your taxes.
TFSA contribution limit
Every year, the Government of Canada sets a contribution limit for TFSAs. This is the maximum amount you can add to your account for that year. If you’re a Canadian resident aged 18 or older, your contribution room starts accumulating the year you turn 18.
If you don’t use up your full contribution limit in a given year, the unused amount gets carried forward, adding to your available contribution room in the future. You can see how much TFSA contribution room you have by logging into your “My Account” on the CRA website. You can also find it on your Notice of Assessment after you file your taxes.
Who can open a TFSA?
TFSAs are available to all Canadian residents aged 18 or older with a valid Social Insurance Number (SIN).
TFSA investment options
You can hold a variety of investments in your TFSA, including:
- Cash
- Stocks
- Bonds
- GICs
- Mutual funds
Each type of investment has its own pros and cons, depending on your savings goals and how much risk you’re comfortable with. If you’re unsure which option is right for you, reach out to Oaken Financial today. We can help you figure out the best fit for your needs.
Withdrawing money from a TFSA
You can withdraw money from your TFSA anytime and for any reason, and the best part is—you won’t pay taxes on it or have to report it as income. Plus, taking money out doesn’t reduce your contribution room for the year.
However, there’s a catch if you want to put that money back into your TFSA in the same year. If you’ve already maxed out your contribution limit, depositing the withdrawn amount right away will count as over-contributing. It’s better to wait until the following year when your contribution room resets before adding the money back.
If you do over-contribute, the CRA charges a 1% tax on the highest excess amount in your TFSA for each month it stays there. So, it’s a good idea to keep track of your limits.
Open a TFSA with Oaken Financial today
TFSAs offer a great way to earn and save money faster without having to lose any of it to your annual taxes. To open your TFSA with Oaken Financial, book an appointment for an in-person chat, call us at 1-855-OAKEN-22 (625-3622), or if you prefer, you can open a TFSA easily in as little as five minutes.
Reviewed and edited by Albert Fang.
See a typo or want to suggest an edit/revision to the content? Use the contact us form to provide feedback.
At FangWallet, we value editorial integrity and open collaboration in curating quality content for readers to enjoy. Much appreciated for the assist.
Did you like our article and find it insightful? We encourage sharing the article link with family and friends to benefit as well - better yet, sharing on social media. Thank you for the support! 🍉
Article Title: How to reduce taxes on your savings account
https://fangwallet.com/2025/07/14/how-to-reduce-taxes-on-your-savings-account/The FangWallet Promise
FangWallet is an editorially independent resource - founded on breaking down challenging financial concepts for anyone to understand since 2014. While we adhere to editorial integrity, note that this post may contain references to products from our partners.
The FangWallet promise is always to have your best interest in mind and be transparent and honest about the financial picture.
Become an Insider
Subscribe to get a free daily budget planner printable to help get your money on track!
Make passive money the right way. No spam.
Editorial Disclaimer: The editorial content on this page is not provided by any of the companies mentioned. The opinions expressed here are the author's alone.
The content of this website is for informational purposes only and does not represent investment advice, or an offer or solicitation to buy or sell any security, investment, or product. Investors are encouraged to do their own due diligence, and, if necessary, consult professional advising before making any investment decisions. Investing involves a high degree of risk, and financial losses may occur including the potential loss of principal.
Source Citation References:
+ Inspo
There are no additional citations or references to note for this article at this time.
