TFSA usage drops as Canadians cope with higher cost of living: BMO

Roughly 62% of eligible Canadians had TFSAs in 2023, compared to 66% the year before and 69% in 2018, according to a Bank of Montreal survey released Wednesday.

As the Bank of Canada’s interest rate remains at 5%, nearly one in four respondents cited paying off debt as the main reason they put off saving. Respondents also said monthly living expenses increased by $397 on average in 2023, and more than half said they spent less on travel, eating out and clothing.

“The results from this survey are understandable given prevailing economic conditions,” said Robert Kavcic, senior economist at BMO, in a release. “Household debt is historically high, inflation has lifted day-to-day cost pressures, and high interest rates make paying down debt a compelling option that might be crowding out some new investment.”

He added that financial conditions are likely to ease this year with rate cuts starting in the summer.

Those with TFSAs reported higher balances, increasing 9% on average from 2022 to $41,510 in 2023. Average TFSA account balances totalled $27,053 in 2018.

The TFSA contribution limit increased to $7,000 in 2024, up from $6,500 last year and $6,000 in 2022.

While roughly one in five respondents said they planned to put more savings into their TFSAs in 2024, one in four said they planned to contribute less. Canadians aged 18 to 27 were the most likely to grow their contributions, with one in three saying they planned to do so.

The survey also showed that while 53% of TFSA owners had investments in their account, the remaining 47% saved in cash, missing out on tax-free growth.

“Among the benefits of investing in a TFSA is the ability to withdraw funds at any time should those funds be needed,” said Nicole Ow, head of retail investments at BMO, in the release. “This flexibility makes the TFSA an excellent investment vehicle, especially during times of economic uncertainty.”

The online study of 1,510 Canadian adults was conducted by Pollara Strategic Insights from Nov. 3-8, 2023.