Retirees and other income investors are wondering how they can get decent returns on their self-directed Tax-Free Savings Account (TFSA) investments without taking on too much capital risk in the current uncertain economic environment.
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TFSA limit 2025
The TFSA limit in 2025 is $7,000. This brings the lifetime maximum cumulative TFSA contribution room to $102,000 for everyone who has qualified since the launch of the TFSA in 2009.
Interest, dividends, and capital gains earned on qualifying investments held inside the TFSA are tax-free. This means the full value of the income can go straight into your pocket. Seniors who receive Old Age Security (OAS) get an additional benefit. The CRA does not include TFSA income when determining net world income for the OAS pension recovery tax that kicks in when income breaches a minimum threshold. The number to watch for the 2025 income year is $93,454.
GICs or dividend stocks?
Rates paid on Guaranteed Investment Certificates (GICs) reached 6% at one point in late 2023 when the Bank of Canada was raising interest rates and the bond market anticipated more hikes. The GIC party started to wind down in early 2024, and rates dropped considerably through the end of last year as the central bank cut interest rates and bond yields pulled back.
At the time of writing, investors can still get non-cashable GIC rates in the 3% to 4% range, depending on the terms and the issuer. This is still above the rate of inflation, so it makes sense for risk-averse income investors to hold some GICs in their TFSA. The downside of a non-cashable GIC is that the invested money is not accessible until maturity.
Owning dividend stocks comes with risks. Share prices can fall below the purchase price and dividends can get cut if a company runs into financial trouble. That being said, dividend-growth stocks with long track records of raising their distributions tend to bounce back from market corrections. Stocks also provide flexibility as they can be sold at any time to access the funds.
Enbridge (TSX: ENB), for example, has increased its dividend annually for the past 30 years. The energy infrastructure giant has the balance sheet strength to make large strategic acquisitions and can fund organic growth projects to boost revenue and cash flow. Enbridge completed its US$14 billion purchase of three natural gas utilities in the United States in 2024 and is working on a $26 billion capital program. Management expects adjusted earnings before interest, taxes, depreciation, and amortization to rise by 7% to 9% through 2026. Distributable cash flow is projected to grow by 3%. This should support ongoing dividend increases. Investors who buy ENB stock at the current level can get a dividend yield of 6%.
The bottom line on TFSA passive income
The right mix of GICs and dividend stocks depends on a person’s risk tolerance, desired yield, and need for quick access to the invested capital. In the current market, an investor can easily build a diversified TFSA portfolio with GICs and dividend stocks to get an average yield of 4% to 5%.
