TFSA Excess Contribution Interest Penalty

One point I was just reading about the tax free savings account coming here in Canada is the possibility of getting penalized if you place too much funds into your account. Essentially, if your limit is $5000 annually contributing $5001 into a TSFA account will mean that $1 will be subject to an interest penalty.

While most banks don’t seem to list the penalty amount that you would have to pay, from the literatures that I have read the interest penalty is 1%. It’s very similar to RRSP’s I guess if you wan to look at it that way. Although, thinking about this I don’t see why a bank can’t just restrict you automatically to make life easier.

The only real way that this might get confusing for people that I can see is how many of the banks will be offering monthly interest calculations to pay TFSA account holders. Therefore, this might confuse some people if they don’t actually keep track of how much they put in but rather just rely on looking at how much is in the account on a monthly basis.

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