I have an RRSP that over the last two years has held at ~10.3% and I have an emergency fund of $10,000 that is just sitting in my savings account.

Would it be prudent to put that whole $10,000 into a mutual fund, slowly making money for me but have to pay taxes on it every year. OR, put the money into a tax free savings account? (TFSA)

I would contribute about $150/month as well.


I ran some spreadsheets on putting the $10k savings over two years and putting them in a mutual fund. Then once a year take the interest earned and put it into something higher risk like an equity fund. That way the mutual funds interest and re-invested dividends and growing the emergency fund and when I put the accumulated interest into a new fund I am not defeating the originals growth.

1 Answer 1


If you place your emergency fund in your TFSA, you can withdraw it at any time (e.g. in an emergency), and then replace the withdrawn money in the next calendar year. Be careful there; you pay a hefty fine if you replace it in the current calendar year if this leads to an overcontribution.

It's not an either-or thing, though. You could invest the money in a mutual fund inside your TFSA. I strongly recommend against this for your emergency fund, however. The whole point of an emergency fund is that you may need it immediately. So, keep it in an investment that you can liquidate quickly. Cash or very-near cash. While I obviously don't know your specific situation, I needed $10,000 within 24 hours and another $10,000 within two weeks during an emergency.

In a world where you have large sums of money, you'd max out your RRSP and TFSA with investments and keep your emergency fund outside of both. But most of us aren't in that situation. In that case, it makes sense to use your TFSA for your emergency fund.

I use some of my TFSA space for my emergency fund (savings account paying low interest, though people often like GICs) and some for investment (passive indexed stocks and bonds).

Note that you need to pay taxes on your savings account interest, too, if held outside your TFSA and RRSP accounts.

  • My bank told me that I could cash out of a mutual fund and receive cash -5% within 25%. IF that is actually true would that change your mind??
    – uMinded
    Nov 1, 2013 at 3:49
  • My issue would be how long it takes to get the money back out. Consider what you might need your emergency fund for and how quickly you may need your funds. For a funeral, it's tomorrow. Nov 1, 2013 at 12:50
  • I will need to call my bank as see what the conditions are for pulling money out of my TFSA when its being invested
    – uMinded
    Nov 1, 2013 at 18:59
  • Good plan! Alternatively, they may be willing to give you a short-term loan on incredibly short notice, in such a case. It sounds like you have considered all the bases. Good job. Nov 1, 2013 at 19:52
  • 1
    Thanks! When I met my wife I had a $15,000 line of credit maxed out. Luckily she's a great money handler and taught me a lot. We now keep the LOC@8% for "Ultra Emergencies" as we pay no frees for it to sit empty.
    – uMinded
    Nov 1, 2013 at 20:47

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