So, you’re 25, you’ve got your eyes on a sweet new $50,000 ride, and you’re ready to start saving. You hit the internet and stumble upon two very different game plans.
In one corner, we have the heavyweight champ of simplicity: the TFSA (Tax-Free Savings Account). It’s straightforward, government-approved, and lets you invest your money with zero tax on the growth. 📈
And in the other corner, the mysterious challenger with a fancy name: the Infinite Banking Concept (IBC). It’s a complex strategy that uses a super-charged whole life insurance policy as your own personal bank. Sounds cool, right? You become your own banker! 🏦
But which one actually gets you in the driver’s seat faster? We crunched the numbers, and the result is a total knockout.
The Race to $50,000: A Tale of Two Timelines
Let’s imagine you’re putting money away to buy that car.
- The TFSA Strategy: You max out your TFSA contributions each year, putting them into a simple S&P 500 index fund. The market does its thing, and your money grows tax-free.
- Time to Goal: You’ll likely hit your $50,000 target in about 6 years, having put in just $42,000 of your own money. The rest is pure, tax-free growth.
- The Infinite Banking Strategy: You pay hefty monthly premiums into a specially designed life insurance policy to build up “cash value.” Then, you borrow against that value to buy the car.
- Time to Goal: It takes around 5 years to build up enough collateral to borrow the $50,000. But to get there, you’ll have to pour $60,000 in premiums into the policy!
Wait, what? The “banking” method requires you to pay $60,000 to borrow $50,000? That doesn’t sound right. And it gets worse.
The Hidden Costs and Killer Combo
The real story is in the fine print.
When you take your $50,000 from the TFSA, it’s a clean break. The money is yours, tax-free, with no strings attached. You have $50,000 in your hand, and you owe nothing.
When you take the $50,000 from your “Infinite Bank,” it’s a loan. You’re borrowing from the insurance company, and they’re going to charge you interest—around 6.5% in this scenario. That’s an extra $3,250 a year in interest payments just for using your own capital!
Let’s look at the final scorecard.
| Feature | TFSA Investing | Infinite Banking (IBC) | Winner 🏆 |
| Speed to Goal | ~6 years | ~5 years | IBC (by a hair) |
| Your Money In | $42,000 | $60,000 | TFSA |
| Cost to Use Funds | $0 (It’s your money!) | ~$3,250 per year | TFSA |
| Simplicity | Easy to set up & use | Super complex | TFSA |
| Flexibility | 100% liquid & accessible | Highly restrictive | TFSA |
The Final Verdict
While the Infinite Banking Concept sounds intriguing, it’s a niche tool for very wealthy individuals with complex estate planning needs. It’s like using a bulldozer to plant a tulip. 🌷
For a young Canadian looking to save for a major purchase, the answer is crystal clear. The TFSA is the undisputed champion. It’s faster in real terms, vastly cheaper, simpler, and more flexible. It puts the power of market growth directly in your pocket without the high costs and complexity of insurance-based strategies.
So, save yourself the headache (and the thousands in fees). Open a TFSA, invest consistently, and you’ll be hitting the open road in your new car before you know it.
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Peter Fuller MBA CPA CA
Toronto, Canada
