Game Changing ETFs For Your Tax-Free Savings Account

ByDylan Callaghan Published On:

Key takeaways

Growth Potential in Canadian & Global Markets – ETFs like XIT, VEQT, and XAW provide exposure to high-growth sectors, ideal for long-term tax-free capital appreciation.

Stable Dividend & Low-Volatility Options – CDZ and ZLB cater to investors looking for steady, tax-free income and lower market fluctuations.

Diversification Across Asset Classes – A mix of Canadian blue-chip stocks (XIU), low-volatility equities (ZLB), and global holdings (XAW) ensures a balanced TFSA strategy.

One ETF I like way better than the ones on this list.

Your Tax-Free Savings Account (TFSA) is a fantastic way to get tax-free gains from your investments.
However, some folks wrongly see these accounts as places to stash cash. Or even worse, to take on extensive risk, all in the name of tax-free gains. Both of these are big mistakes.

Many say the TFSA needs a new name, like the “Tax-Free Investing Account.” But I feel many retail investors treat it as a “Tax-Free Gambling Account.” Remember, once your contribution room is gone, it never comes back. This makes taking on extensive risk in the TFSA a gigantic mistake.

However, suppose you build a strong mix of stocks, bonds, or Canadian ETFs in your TFSA. In that case, you’ll enjoy the benefits later, especially when you retire. It’s smart to maximize your TFSA yearly and invest in trusted companies or funds if you’re young.

Your TFSA might reach 7 figures by the time you retire. Imagine having over a million dollars that the CRA can’t touch!

Lets look at some of the best ETFs for your TFSA today.

What are the best Canadian ETFs for your TFSA today?

Growth-focused Canadian tech ETF

iShares S&P/TSX Capped Info Tech ETF (TSE:XIT)

XIT offers exposure to Canada’s top technology stocks, including industry leaders like Shopify, Constellation Software, and CGI. Given the TFSA’s tax-free benefits, this ETF is ideal for investors seeking long-term capital appreciation in a high-growth sector.

Fund Family: BlackRock Asset Management Canada Ltd

AUM: $885.4M

Fees: 0.60%

Currency: CAD

Number of Holdings: 24

Hedged: No

5 Yr Annual Returns: 18.76%

1 Yr Fund Flows: $-75.1M

5 Yr Tax Cost Ratio: 0.00%

Yield: 0.00%

  • Concentrated Tech Exposure – Canada’s tech sector is smaller than the U.S., but XIT provides a focused allocation to its most promising firms.
  • High-Growth Potential – Companies like Shopify and Constellation Software have a strong track record of expansion.
  • Low Expense Ratio (0.61%) – While slightly higher than broad-market ETFs, the cost is justified for access to Canada’s tech leaders.
  • Volatility Consideration – Tech stocks can be volatile, but a TFSA’s long-term horizon makes it easier to ride out short-term fluctuations.
  • AI and Cloud Computing – Many XIT holdings are heavily investing in AI-driven solutions.
  • Interest Rate Sensitivity – Growth stocks can be impacted by higher borrowing costs.
  • Global Expansion of Canadian Tech – International market penetration is a key growth driver.
  • Lack of Diversification – Heavy exposure to a small number of companies increases risk.
  • Economic Cycles – Tech stocks can be highly sensitive to market downturns.

Dividend-focused Canadian equity ETF

TSX Canadian Dividend Aristocrats Index ETF (TSE:CDZ)

CDZ tracks companies with a strong history of increasing dividends, making it a great option for passive income investors. The TFSA’s tax-free nature makes it an excellent vehicle for compounding dividends over time.

Fund Family: BlackRock Asset Management Canada Ltd

AUM: $924.7M

Fees: 0.66%

Currency: CAD

Number of Holdings: 94

Hedged: No

5 Yr Annual Returns: 7.33%

1 Yr Fund Flows: $-64.2

5 Yr Tax Cost Ratio: 1.93%

Yield: 3.75%

  • Reliable Dividend Growth – Holds stocks with a track record of consistent dividend hikes.
  • Sector Diversification – Includes financials, utilities, energy, and industrials, reducing sector-specific risk.
  • Compounding Effect – Tax-free reinvestment of dividends accelerates long-term returns.
  • Lower Volatility – Dividend-paying stocks tend to be more stable during market downturns.
  • Interest Rate Movements – Rising rates impact dividend-paying stocks differently across sectors.
  • Corporate Profitability in Canada – Strong earnings support dividend sustainability.
  • Inflation Protection – Some dividend stocks can provide inflation-adjusted returns.
  • Sector Concentration – Heavy exposure to financials and energy.
  • Dividend Cuts – Not all companies maintain payouts during recessions.

Broad Canadian blue-chip equity exposure

iShares S&P/TSX 60 ETF (TSE:XIU)

XIU is one of the largest and most liquid Canadian ETFs, providing exposure to the 60 biggest companies in Canada, including financials, energy, and materials. It’s an excellent core holding for a TFSA.

Fund Family: BlackRock Asset Management Canada Ltd

AUM: $16.17B

Fees: 0.18%

Currency: CAD

Number of Holdings: 70

Hedged: No

5 Yr Annual Returns: 10.93%

1 Yr Fund Flows: $2.19B

5 Yr Tax Cost Ratio: 1.52%

Yield: 2.81%

  • Exposure to Canada’s Largest Companies – Covers the most dominant stocks in Canada.
  • Strong Performance Track Record – Historically delivers solid returns in line with the TSX.
  • Low-Cost ETF (0.18% MER) – Cost-efficient way to gain diversified market exposure.
  • Dividend Yield (~3%) – Offers a balance between growth and income.
  • Oil & Gas Sector Performance – Energy stocks play a significant role in XIU.
  • Financial Sector Strength – Banks and insurers are core holdings.
  • Commodity Prices – Mining and materials stocks are impacted by global demand.
  • Heavy Financials & Energy Allocation – Can be vulnerable to sector-specific downturns.
  • Limited Growth Stocks – Lacks exposure to high-growth industries like tech.

One-ticket global equity ETF

Vanguard All-Equity ETF Portfolio (TSE:VEQT)

VEQT is a one-ticket solution that provides exposure to Canadian, U.S., and international stocks. With 100% equity allocation, it’s designed for long-term growth investors.

Fund Family: Vanguard Investments Canada Inc

AUM: $6.43B

Fees: 0.24%

Currency: CAD

Number of Holdings: 4

Hedged: No

5 Yr Annual Returns: 11.39%

1 Yr Fund Flows: $1.889B

5 Yr Tax Cost Ratio: 0.89%

Yield: 1.52%

  • Globally Diversified – Includes Canadian, U.S., European, and emerging market equities.
  • Tax-Free Growth Potential – TFSA allows full capital appreciation without tax drag.
  • No Need for Rebalancing – Automatically maintains diversification.
  • Ideal for Long-Term Investors – Higher risk but strong long-term return potential.
  • Global Economic Growth – International markets contribute to overall returns.
  • Interest Rates & Inflation – Affect valuations of high-growth stocks.
  • Currency Fluctuations – Exposure to multiple currencies introduces forex risk.
  • Higher Volatility – No fixed-income exposure; fully invested in stocks.
  • Market Downturns – Global recessions can impact returns.

Global equity exposure excluding Canada

iShares Core MSCI Ex-Canada ETF (TSE:XAW)

XAW provides exposure to U.S., European, and emerging market equities, making it a great complement to a TFSA-heavy Canadian portfolio.

Fund Family: BlackRock Asset Management Canada Ltd

AUM: $2.98B

Fees: 0.22%

Currency: CAD

Number of Holdings: 9

Hedged: No

5 Yr Annual Returns: 11.69%

1 Yr Fund Flows: $198.9M

5 Yr Tax Cost Ratio: 0.87%

Yield: 1.56%

  • Diversification Beyond Canada – Reduces home-country bias by investing globally.
  • High Exposure to U.S. Tech & Growth Stocks – Includes companies like Apple, Microsoft, and Amazon.
  • Tax-Free Foreign Growth – TFSA shields gains from international stocks.
  • Low-Cost Global Investing (0.22% MER) – Competitive fee for international diversification.
  • U.S. Stock Market Performance – Heavily weighted towards American stocks.
  • Emerging Market Growth – Provides exposure to China, India, and other high-growth regions.
  • Tech Sector Trends – Significant allocation to major global technology firms.
  • Currency Fluctuations – Foreign exchange movements can impact returns.
  • U.S. Market Dependence – Heavy reliance on the U.S. for performance.

Stability-focused Canadian equity ETF

BMO Low Volatility Canadian Equity Fund Srs ETF (TSE:ZLB)

ZLB is designed to provide exposure to Canadian stocks with lower historical volatility. It focuses on companies that tend to experience smaller price swings while maintaining steady growth and dividend payouts. This makes it a great choice for risk-averse investors who want equity exposure without extreme market fluctuations. In a TFSA, ZLB’s steady capital appreciation and dividends can compound tax-free over time, making it an excellent defensive core holding.

Fund Family: BMO Asset Management Inc

AUM: $4B

Fees: 0.39%

Currency: CAD

Number of Holdings: 55

Hedged: No

5 Yr Annual Returns: 8.57%

1 Yr Fund Flows: $242.2M

5 Yr Tax Cost Ratio: 1.35%

Yield: 2.35%

  • Lower Volatility, Smoother Returns – ZLB selects stocks with historically lower price fluctuations, making it ideal for investors who want to reduce overall portfolio risk. While it won’t shoot up as fast as high-growth ETFs, it outperforms in down markets by limiting losses.
  • Strong Dividend Component – Many of ZLB’s holdings offer stable and growing dividends, which compound tax-free inside a TFSA. This adds a layer of passive income to the portfolio.
  • Sector Tilt Toward Stability – The ETF underweights volatile sectors like energy and technology while favoring consumer staples, utilities, and financials—sectors that tend to perform well in uncertain markets.
  • Defensive Positioning in Market Downturns – Historically, ZLB has been more resilient during bear markets, making it a great hedge against economic slowdowns.
  • Perfect for Conservative Investors – For those who want exposure to equities without the rollercoaster ride, ZLB offers a balanced approach to long-term tax-free growth.
  • Market Volatility & Economic Uncertainty – Defensive stocks tend to outperform in volatile markets, making ZLB a strong pick during economic downturns.
  • Interest Rate Sensitivity – With higher interest rates, investors may seek stability over high-risk assets, increasing demand for low-volatility ETFs like ZLB.
  • Dividend Growth Potential – Many of ZLB’s holdings have a track record of increasing dividend payouts, which enhances long-term returns.
  • Sector Rotation Strategies – If investors move away from growth-heavy sectors like tech, defensive stocks could see inflows, boosting ZLB’s performance.
  • Underperformance in Bull Markets – When markets surge, ZLB may lag behind because it lacks exposure to high-growth sectors like tech.
  • Sector Bias – ZLB is overweight in utilities, consumer staples, and financials, which could limit diversification if those sectors underperform.
  • Interest Rate Sensitivity – Some dividend-focused sectors, like utilities, are rate-sensitive, meaning higher interest rates could put pressure on stock prices.

Overall, these funds are outstanding options for your TFSA

If you’re looking for places to invest your contribution room this year, it is hard to argue with the options above.

However, with the ETF market skyrocketing in popularity and more and more funds emerging every day, including inverse ETFs with the focus on market volatility, it’s essential you pick a strategy and investigate the options based on that. I’ve tried to introduce a variety of ETFs in this post for those strategies.

For example, the growth investor who isn’t concerned about income may want a technology option like XIT. In contrast, someone who wants the income could look into CDZ. The total market ETFs are outstanding options for those who want “set and forget” all-in-one exposure. I’ve included Vanguard and iShares in this post, but virtually all major fund managers have these types of ETFs.

The best part? Depending on your brokerage account, you may not even have to pay commissions to buy and sell these ETFs. While a company like Wealthsimple Trade has free trades on all Canadian options, platforms like Questrade also have a particular set of ETFs you can buy commission-free.

Make sure to check if your online broker offers free trades and see if these ETFs are on their list.

Should I hold ETFs in a TFSA?

Absolutely. If you are an investor who wants to take a more passive approach to investing, it makes perfect sense to buy index funds, index fund ETFs, or even actively managed ETFs inside of your TFSA.

ETFs make some of the best TFSA investments. They are a low-cost way to gain instant exposure to a diversified portfolio of companies at a much lower cost than mutual funds. ETFs do not have the allure or potential for striking it big as picking individual stocks.

However, ETFs often come with lower risk, and the ability to capture larger exposure such as S&P 500 ETFs or niche market ETFs, such as technology ETFs.

What ETFs are best for the TFSA?

You’d think that because the TFSA is completely tax-sheltered from the CRA, it would be immune from any type of tax. However, this isn’t the case. The IRS doesn’t recognize the TFSA as a retirement account in its tax treaty with Canada.

As a result, if you own US ETFs or US stocks inside of a TFSA, you will be subject to withholding tax on the dividends. Given this, in theory, it is best to own Canadian stocks inside of a TFSA and reserve your US dividend-paying stocks for your RRSP.

However, we still have a couple of options on this list that include US stocks. Withholding taxes are relatively small, and in my opinion, the tax is not worth avoiding exposure to the US or global economy.

Of note, US ETFs and US stocks you sell for capital gains would be tax-free, even inside a TFSA. The only issue with the TFSA and US stocks is when you introduce dividend-paying companies or ETFs from the United States.

The TFSA can be used as a short-term, tax-free savings vehicle to earn some interest on your deposits. For example, an ETF like Horizon’s CASH.TO is completely liquid and pays a monthly distribution. If you have short-term savings, you could deposit them into your TFSA at your brokerage and start earning interest immediately.

Remember, CASH differs from bond ETFs, which will fluctuate up and down in price.