Knowledge still weak on TFSA

Here’s the deal, you can stash away up to $5,000 per year, invest in any of the most popular and accessible vehicles and your returns are tax free. Sounds good, right? But more than half of Canadians have not taken advantage of the TFSA, according to a survey commissioned by ING DIRECT.

Even among those who have opened one, the vast majority (87%) are only using it as an emergency fund. But by placing the funds in ultra-safe deposits, Canadians are missing out on the potential for significant tax-exempt returns.

Only 13% of respondents said they were considering products such as mutual funds that have the potential to generate higher returns, while 47% were unsure what they would hold.

“Many Canadians are not tapping the true strength of TFSAs to shield a wide range of investments from taxation as part of a longer-term retirement strategy,” says Peter Aceto, president and CEO of ING DIRECT Canada

He says the financial industry has to do a better job educating savers on the benefits of the TFSA. There is plenty of room for education too: the survey also found that 8% of those polled thought a TFSA was more complicated than an RRSP.

The survey found about 20% had made TFSA withdrawals. Of those only 14% of Canadians have used a TFSA for savings towards a goal, with home renovation (60%) being most popular followed by purchasing a vehicle (15%).

Investors also need to be aware of any fees that their financial institution charges for moving funds from the TFSA to an account at another institution.

“This can wipe out any interest gains and often deters people from moving TFSA funds from one institution to another where they could receive considerably better returns,” Aceto says.