Tax Free Savings Accounts (TFSA) and Registered Retirement Savings Accounts (RRSP)
It is important to note that a TFSA or an RRSP is not an "account" in itself, but is simply a normal account that is "registered" for a special purpose. Therefore a TFSA or RRSP can be almost any type of savings account including, but not limited to, a Daily Interest Account, GIC or Segregated Fund.
Until 2009, most Canadians held their retirement savings in an RRSP, where they could claim a deduction for their contributions and then defer tax on withdrawals until retirement. The introduction of the TFSA has provided another powerful savings vehicle that allows investment growth to accumulate and be withdrawn at any time tax free. Unlike an RRSP, you cannot claim a tax deduction for the contribution you make to a TFSA. On the plus side, if you need to withdraw money from your TFSA, you have an opportunity to replace that money because all TFSA withdrawals are added back to your unused contribution room in the following year.
If you are saving for retirement, then you may be torn between an RRSP and a TFSA. Ideally, you would maximized contributions to both, but if that is not an option here are some thoughts to consider.
Generally an RRSP is used for retirement savings, while a TFSA can be used for both saving for retirement and shorter-term purchases. Because TFSA withdrawals are added back to your available TFSA contribution room in the following year, there is very little downside to using your TFSA savings for mid-sized to large purchases.
Generally speaking, you would be wise to discuss your personal situation and needs with your Financial Advisor to determine what combination would work best for you.