Since 2022, Canada has experienced a dramatic shift in interest rate policy. After starting at an ultra-low 0.25% in early 2022, the Bank of Canada raised the policy rate aggressively to 5% by mid-2023 to rein in surging inflation. It held at that level for a year before rate cuts began in the summer of 2024, bringing the benchmark down to 2.75% by early 2025 — where it stands today.
With inflation now easing and interest rates coming down, Canadian investors are faced with a key decision: where should new money — like the $7,000 Tax-Free Savings Account (TFSA) contribution room — go in today’s market?
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GICs and high-interest accounts: Safety first, growth later
Not long ago, fixed income looked surprisingly attractive. In 2024, many Canadians locked in guaranteed investment certificates (GICs) offering annualized returns north of 4%. Today, those rates have declined. The best available GICs offer around 3.5%, while those from major banks hover closer to 2.7%. High-interest savings accounts are still an option, offering similar low-risk, low-return characteristics.
For conservative investors or those with short-term goals, these instruments continue to serve a purpose. They preserve capital, provide modest returns, and give peace of mind amid economic uncertainty. But the flip side is clear: they offer virtually no growth.
With the Canadian stock market trading near all-time highs and showing signs of plateauing, it’s tempting to remain cautious. But for long-term investors willing to embrace some risk and ride out short-term volatility, there are solid Canadian stocks worth considering.
Growth-oriented investors: Buy quality, think long term
If you have a long investment horizon and a high tolerance for volatility, consider using your $7,000 TFSA contribution to build a position in well-managed companies with long-term growth potential. Two names that come to mind are Constellation Software (TSX:CSU) and goeasy (TSX:GSY).
Constellation Software is a Canadian tech success story. The company has grown through a disciplined acquisition strategy, buying niche software businesses around the world and integrating them into its portfolio.
The top tech stock has delivered stellar long-term returns for shareholders and continues to have a strong management team focused on capital allocation. Despite trading at a premium valuation, its long-term track record of compounding makes it a strong candidate for growth-focused TFSAs.
Those who are afraid of jumping in at a high could dollar-cost average into their positions over the next months, such as buying $500/month at a time using commission-free trading platforms like Wealthsimple that allow for partial share purchases.
goeasy, while lesser known, is a Canadian non-prime lender that has quietly built a strong business over the years. It offers personal loans, lease-to-own furniture, and other financial services to consumers who might not qualify for traditional credit. With a growing loan book, improving credit metrics, and a track record of increasing dividends, goeasy offers both growth and income potential. It’s more volatile than CSU, but also trades at a more attractive valuation — ideal for investors looking for upside in a TFSA.
Investor takeaway: Match your TFSA strategy to your risk profile
There is no one-size-fits-all answer for where to park your $7,000 TFSA contribution. If you’re concerned about market volatility and are risk-averse, high-interest savings accounts or short-term GICs can still play a role. But for investors who want to make the most of their tax-free growth potential, quality Canadian stocks like Constellation Software and goeasy can potentially offer attractive long-term returns — especially when bought during market dips.
Your TFSA is one of the best tools for wealth creation in Canada. Use it wisely based on your financial goals, time horizon, and appetite for risk.
