The FHSA is Canada’s hot new account, and in most cases, it’s better to contribute to it first over the RRSP. I’ll do a detailed head-to-head comparison —and stick around, because there are two key situations where the RRSP still comes out on top.
Saving for a Home: FHSA vs RRSP
Let’s start with the FHSA, a more straightforward option for homebuyers. With the FHSA, you can contribute up to $8,000 per year, maxing out at $40,000 over time. When you’re ready to buy your home, you can withdraw the full amount tax-free, and the best part? There’s no repayment required. This gives you more financial freedom and less stress, especially in those early years of homeownership.
Take Paul, for example. Over five years, he contributed the maximum to his FHSA, totalling $40,000. When it was time to purchase his home, Paul withdrew the entire amount tax-free, with no obligation to pay it back, leaving him free to focus on his new home without any financial burdens.
Now, compare that with the RRSP Home Buyers’ Plan (HBP). With the HBP, Paul could withdraw up to $60,000 tax-free (note that has recently increased from $35,000!), but he would need to repay it over 15 years, starting five years after the withdrawal. Missing a repayment could mean adding that amount to his taxable income for the year, which would bump up his tax bill.
Winner for saving for a home: FHSA. It offers tax-free withdrawals and no repayment obligations, giving you peace of mind—perfect for first-time homebuyers who want to avoid the financial stress of repayment.
Down Payment Potential: FHSA vs RRSP
Paul contributes $8,000 annually to his FHSA for five years, totaling $40,000. With a 6% annual return, his account grows to about $45,096 by the end of those five years. If Paul leaves the money invested for an additional 10 years, his FHSA could grow to approximately $80,760, giving him a larger down payment—all tax-free when he buys a home.
In comparison, if Paul uses the RRSP’s Home Buyers’ Plan (HBP), he can withdraw up to $60,000 tax-free, but that’s the limit. Unlike the FHSA, his RRSP withdrawal is capped, and he’ll need to repay it over time.
Winner for Paul’s Down Payment Potential: FHSA. It offers more flexibility and the potential for a larger, tax-free down payment, especially if he doesn’t need to buy a home right away.
Tax Benefits: FHSA vs. RRSP
The FHSA offers a clear advantage: contributions are tax-deductible, just like the RRSP, giving you a tax break upfront. However, the real benefit of the FHSA comes at withdrawal—when you use the funds to buy your first home, the withdrawal is completely tax-free. This means you get a double tax advantage: you save on taxes when you contribute and again when you withdraw.
Now, let’s look at the RRSP. Contributions are also tax-deductible, providing you the same upfront savings. If you use the Home Buyers’ Plan (HBP), you can withdraw up to $60,000 tax-free, but the key difference is that you must repay the amount over 15 years. If you miss a repayment, the missed amount is added to your taxable income for that year.
For example, contributing $8,000 to your FHSA might save you around $2,000 in taxes (depending on your bracket). If the account grows to $10,000 and you withdraw it for a home, the entire amount is tax-free, and there’s no repayment required.
With the RRSP, you’d withdraw the money tax-free under the HBP, but you’ll have to start repaying it within five years, and then it will be eventually taxed when you take it out. It’s basically just like a tax free loan from your RRSP, which is not as effective as the FHSA.
Winner for Tax Benefits: FHSA. It provides upfront tax savings, tax-free withdrawals, and the flexibility of no repayment, making it the simpler, more efficient option for homebuyers.
Investment Potential
Both the FHSA and RRSP offer excellent investment opportunities. Whether you want to invest in stocks, bonds, mutual funds, or ETFs, both accounts allow for a wide range of investment options. The key benefit is that both accounts offer tax-deferred growth, meaning you won’t pay taxes on the gains while your investments grow, allowing for compounding over time.
It’s a bit confusing that the FHSA is labeled a “savings account,” since it actually functions like an investment account. You’re not just parking cash—you can make strategic investments that have the potential to grow significantly, just like with an RRSP.
Because both the FHSA and RRSP offer the same investment potential, there’s no clear winner here. You can use either account to build a well-diversified investment portfolio that grows tax-deferred.
Winner: Tie. Both accounts allow for tax-deferred growth and offer the same powerful investment opportunities. The main difference comes in how you withdraw the funds, not in how you invest them.
Retirement Savings
When saving for retirement, the RRSP often seems like the go-to choice due to its higher contribution limits and retirement focus. After all, it does have the word “retirement” it’s name.
However, the FHSA offers a flexible and powerful alternative, even if you don’t plan on buying a home. You can contribute up to $40,000 to the FHSA over time, and you have up to 15 years to use the funds for a home.
And here’s the key point: If you decide not to buy a home within that period, the balance can be transferred into your RRSP, meaning you won’t lose any tax advantages. You get flexibility without losing growth potential or tax benefits. The FHSA essentially acts as a bridge to the RRSP, offering the same growth potential but with added flexibility for first-time homebuyers.
The RRSP does allow for higher contributions of up to 18% of your income annually, but starting with the FHSA gives you more flexibility. You can take advantage of tax-free withdrawals for a home, and if your plans change, you can transfer the funds into an RRSP without any penalties.
Recently, a client of ours was debating between which to contribute to first, her FHSA or RRSP. After learning how easily her FHSA could transfer into her RRSP without penalties, she decided to go with the FHSA.
Winner: FHSA. The FHSA provides tax-free withdrawals for a home and the flexibility to roll into an RRSP after 15 years, making it an ideal starting point for both homebuyers and long-term retirement planners.
US Stocks & Employer Matching
There are two situations where the RRSP is the smarter choice over the FHSA. One key example is if you’re investing in U.S. stocks. Any dividends you earn in an FHSA are hit with a 15% withholding tax, which can take a bite out of your returns. But with the RRSP, thanks to the U.S.-Canada tax treaty, you avoid this tax entirely.
Pro Tip: Invest in U.S. stocks through your RRSP, not your FHSA, to bypass that 15% withholding tax on dividends.
Another advantage of the RRSP is employer matching. If your employer offers to match your RRSP contributions, that’s essentially free money boosting your retirement savings.
Let’s say Paul’s employer offers to match his RRSP contributions up to $5,000 per year. If Paul contributes $5,000 to his RRSP, his employer will add an additional $5,000, giving him a total of $10,000 in his RRSP for the year. This is a huge benefit.
Unfortunately, the FHSA doesn’t offer employer matching, so if you have access to this benefit at work, the RRSP is the clear winner here.
Winner: RRSP. When it comes to avoiding U.S. dividend taxes and taking advantage of employer matching, the RRSP takes the lead for long-term savers and those with strong work benefits.
Add the final comparison table here:
Overall, even if you’re not saving to buy a home, the FHSA wins in most categories over the RRSP. Whether it’s flexibility, saving for a home, or tax advantages, the FHSA typically comes out ahead. The only times it might make more sense to prioritize an RRSP is if you’re heavily investing in U.S. stocks or if you’re getting employer matching RRSP contributions.
If you need help deciding where to save, Blueprint Financial offers expert plans tailored to your needs. Check out our services on this website, and book a free consultation when you’re ready!
