TFSA no threat to RRSP habits: Survey

The January launch of the Tax-Free Savings Account will not materially impact the amount of cash flowing into Registered Retirement Savings Plans, according to a survey conducted for RBC.

Just 8% of respondents to the 19th annual RBC RRSP poll said they would reduce their RRSP contributions in order to fund the new TFSA. Among those who have heard of the TFSA, 33% said they plan to contribute to both accounts, while 23% said they would fund their new TFSA with assets from an existing non-registered account.

“While Canadians continue to use RRSPs to save for retirement, the TFSA can supplement these savings while sheltering investment returns from tax,” said Lee Anne Davies, head, advanced retirement strategies, RBC. “The TFSA allows Canadians the flexibility to save and invest for a variety of short-term and long-term financial goals.”

Saving for retirement is the second most important financial priority for Canadians, according to the survey, taking a backseat only to debt repayment. Saving for non-retirement goals ranked third.

Among those who are aware of the TFSA, 47% plan to fund one. Somehow, 55% of Canadians have not even heard of the TFSA yet. Younger Canadians were even less likely to have heard of it, with 65% of those between 18 and 34 not having a clue.

While the TFSA is well suited to short-term investing goals, 44% of those who plan to open one say they will use it to save for their retirement. Respondents between the ages of 35 and 54 were more likely to use it as a retirement vehicle, at 57%.

Forty per cent said they would open a TFSA to save for an emergency, while 29% said it would be an everyday savings account. One quarter said it would be used to fund a large or special purchase.

The TFSA has sparked a race to provide investment options tailored to the account. Today, Mackenzie Investments announced the launch of the Mackenzie TFSA High Interest Cash Builder, essentially a premium deposit account available only through a TFSA.

The product will offer a higher interest rate than most bank accounts or short-term GICs, and will be eligible for CDIC insurance.

“Safety, growth and tax free are three things investors like to hear, and the TFSA is one of the most flexible savings vehicles available to Canadian investors,” said Wilmot George, specialist, tax and estate planning with Mackenzie Investments.

(12/17/08)