Canadian savers have to navigate a challenging market in 2025 when it comes to investing funds in their self-directed Tax-Free Savings Account (TFSA). Share prices on Canadian dividend stocks have been erratic, and rates offered on Guaranteed Investment Certificates (GICs) are much lower than they were a year ago.
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TFSA limit 2025
The TFSA limit is $7,000 in 2025. This brings the maximum cumulative TFSA contribution space to $102,000 for anyone who has qualified since the inception of the TFSA in 2009.
All interest, dividends, and capital gains earned on qualifying investments inside the TFSA are tax-free. This means the profits can be fully reinvested or withdrawn and put right in your pocket.
Seniors who receive the Old Age Security (OAS) pension get an added benefit. TFSA income is not counted towards the net world income calculation the CRA uses to determine the OAS pension recovery tax, otherwise known as the OAS clawback that kicks in at a minimum income threshold. In the 2025 tax year, every dollar of net world income above $93,454 triggers a $0.15 reduction in the OAS that gets paid in the July 2026 to June 2027 payment period. For example, a senior with $103,454 in net world income in 2025 would see their OAS cut by $1,500 in the next payment year.
As such, it makes sense for most retirees to max out TFSA contributions before holding income-generating investments investments in taxable accounts.
GICs or dividend stocks
GIC rates briefly hit 6% in the fall of 2023 at the peak of the rate-hike fears. Since then, expectations for interest rate cuts and the arrival of rate cuts in Canada have led to a steady decline in the rates offered by financial institutions on GIC products. At the time of writing, investors can get non-cashable GICs in the 3-4% range, depending on the term and the institution. This is still better than the current rate of inflation, so it makes sense to consider GICs for generating TFSA income.
The downside of a GIC is that the best rates are offered on non-cashable products. This means the capital is not accessible until the GIC matures. In addition, rates available at maturity might be lower for renewal, so there is a risk that income will drop.
The benefit of the GIC is that the investment is 100% safe as long as it is made with a Canada Deposit Insurance Corporation (CDIC) member and is within the $100,000 limit.
Dividend stocks
Owning dividend stocks comes with risk, as we have all been reminded in the past couple of weeks. Share prices can fall below the purchase price, and dividends can sometimes get cut if a company runs into financial trouble. That being said, top TSX dividend stocks with long track records of dividend growth are worth considering when the market is under pressure. Lower share prices increase the dividend yield. Dividend growth boosts the return on the initial investment.
Enbridge (TSX: ENB) is a good example to consider. The board has increased the dividend annually for the past 30 years. Ongoing capital investments and periodic acquisitions drive revenue and cash flow growth to support dividend hikes.
Enbridge trades near $58.50 at the time of writing compared to $64.50 last week. Investors who buy the dip can get a dividend yield of 6.4%.
The bottom line on TFSA income
The right mix between GICs and dividend stocks for TFSA income depends on a person’s risk tolerance, need for access to the capital, and the required rate of return. A diversified portfolio containing GICs and top dividend stocks might be the way to go for most people, as it can reduce risk while providing attractive returns.
