Are you using your TFSA properly? Four in 10 Canadians are not

Are you making the most of your TFSA? A new poll shows Canadians are not making the most of their TFSA. CTV's Pattie Lovett-Reid has more on what you should do with your account.

About 43 per cent of Canadians are misinformed about tax-free savings accounts and believe they cannot be used to generate more money, according to a new poll.

The poll, which was commissioned by the Royal Bank of Canada and released on Tuesday, found that more Canadians have tax-free savings accounts (TFSAs) than retirement savings plans (RSPs). It also found that TFSAs are the preferred investment account among people over the age of 55, a demographic that previously focused their savings in RSPs.

Stuart Gray, director of financial planning centre of expertise at RBC, said in a statement that Canadians are “drawn to the flexibility of saving cash in their TFSAs,” but they are not taking advantage of all of its opportunities.

“The magic happens when you invest the money within your TFSA and gain the benefit of compounding, which helps your earnings generate even more earnings. You gain interest not only on your original investment, but also interest on your interest.”

Income earned through a TFSA is not taxed and therefore the full amount is available to the account’s user.

About 42 per cent of people who use a TFSA do so to hold savings and cash, the poll said, while 28 per cent hold mutual funds, 19 per cent hold stocks and 15 per cent for guaranteed investment certificates.

The poll found that seven per cent use the savings account to hold exchange-traded funds.

Gray says that the name of the account has misled many Canadians into believing the accounts are meant to be used only as a means to save money.

“Canadians often have money parked in their savings accounts – including their TFSAs – and untouched for long periods of time,” noted Gray. “You can take control and look for opportunities to invest these funds so they can work for you. You can build up your savings with financial flexibility to reach your long and short term goals.”

Two out of three people who use TFSAs report they have not withdrawn money from their account. The top reasons for doing so, the poll said, is to pay off debt, make a large or special purchase, or for an emergency situation.

The poll was conducted by Ipsos and surveyed about 2,000 Canadians over the age of 18 between Nov. 20 and Nov. 26 of last year. The poll is accurate within 2.2 percentage points.