More than half of Canadians don’t choose Tax Free Savings Accounts as their investment vehicle, according to a new survey by ING Direct.
“The TFSA has been around for nearly four years, and it’s unfortunate that so many Canadians aren’t taking full advantage of this savings opportunity,” says Peter Aceto, president and CEO, ING Direct. “Since its launch, TFSAs have been a great way to reach short-term and long-term savings goals and provide flexibility that other investment options, like RSPs, don’t.”
But while 44 per cent of Canadians say they are familiar with how the accounts work, the real culprit behind the tempered use of TFSAs by Canadians is a lack of excess funds to contribute.
Breaking the Paycheque Cycle
According to ING Direct, 53 per cent of Canadians are living paycheque to paycheque and don’t have the surplus to invest in a TFSA. Nearly a third of those surveyed said they have no plan to open such an account within the next year or two.
Bridging the Generational Savings Gap
Of those surveyed who do have a TFSA, the survey shows 38 per cent use the account as a vessel for retirement savings, while 30 per cent use it to house emergency funds.
For people between the ages of 18-34 with TFSAs, the account is more utilitarian, with 24 per cent citing it as an emergency fund and 19 per cent using it to stockpile for a down payment on a house.
Why Should You Get a TFSA?
The Tax Free Savings Account, for all intents and purposes, is meant to be a long-term savings tool – a sentiment held by 74 per cent of Canadians.
“With a TFSA, there’s no tax implication when you withdraw funds, and you don’t lose your contribution room over the long term,” says Aceto.
Debunking the Confusion
However, many people are still unaware of these rules, with a third of those surveyed saying they weren’t sure whether you pay tax when withdrawing funds from a TFSA. Fifty two per cent say they are unsure if you can have more than one TFSA. “The answer is yes,” says Aceto adding that, “Being knowledgeable about the relevance and benefits of this savings program – and saving in general – is a key part to Canadians’ financial success.
Psst… Want more info on how these accounts work? Check out our TFSA LEARN section!
Many Canadians still prefer to put their savings in a Retirement Savings Plan (RSP) with 52 per cent of those surveyed picking it over TFSAs as their mode of investment.