Intentions are good, but TFSAs largely misunderstood: Canadians continue to use TFSAs as savings piggy banks, rather than a powerful investing solution

RBC poll finds tax-free benefits, flexible investment options remain untapped

TORONTO, Aug. 20, 2019 /CNW/ - It's been 10 years since TFSAs (Tax-Free Savings Accounts) first appeared and while they're proving to be Canada's savings superhero, their true super power remains dormant. Canadians continue to largely use their TFSAs for savings storage rather than benefiting from tax-free returns, by investing those funds to help them grow, according to the 2019 RBC Financial Independence in Retirement Poll.

For the first time, the poll found more Canadians have TFSAs than RRSPs (Registered Retirement Savings Plans), by 57% compared to 52%. TFSAs are now the preferred option of Canadians aged 55+, who in the past have primarily focused on RRSPs. When asked which plan they would choose if they could only contribute to one, a resounding two-thirds (64%) selected TFSAs over RRSPs.

For all TFSA holders, the top five holdings within their plans include:

• 42% – savings accounts and cash
• 28% – mutual funds
• 19% – stocks
• 15% – GICs/term deposits
• 7% – ETFs (exchange-traded funds)

"Canadians are drawn to the flexibility of saving cash in their TFSAs, but it shouldn't stop there. The true advantage of contributing money to your TFSA is to help you reach your goals, not just to have a short-term savings account," advised Stuart Gray, Director, Financial Planning Centre of Expertise, RBC. "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."

Gray added that the name "Tax-Free Savings Account" has misled many Canadians into overlooking investments they can hold within this account and in addition they have been overlooking the tax-free benefit. "Income earned on what you hold within your TFSA is not taxed, so the compounding occurs for the full amount. You can invest in a variety of investments to help you maximize your tax-free return, to help you reach your financial goals."

RBC offers some examples of short-term to long-term investments you can hold within your TFSA:

• Short-term savings goal (30+ days): For as little as $500 invested for 30 days or more, you can put your savings to work in a GIC. Your initial investment remains protected, at a fixed interest rate, and you have the potential to start earning more on your savings for that rainy day fund or special trip.
• Mid-term savings goal (5+ years): For an investment of $500 or more, you can have a professionally managed portfolio that can easily be redeemed to fund any big purchase you are saving up for. Check out this option with a financial advisor at your local bank branch, who can also help you explore a combination of GICs and mutual funds, to help you achieve your big ticket savings goal sooner rather than later.
• Long-term savings goal (10+ years): You can start with a $500 investment in mutual funds, stocks or ETFs (Exchange-traded funds) and continue to build your savings for the long term, including for retirement. With time on your side, you can potentially benefit from the generally higher long term returns of investing in the stock market and smooth out shorter term market movements. Again, a financial advisor can help you explore your options.

The RBC poll indicated that, while the majority of Canadians (74%) understand TFSAs can contain cash or investments, four-in-10 (43%) are misinformed and believe TFSAs are for savings and not for growing money. In line with this savings focus, two out of three TFSA holders (65%) reported they have not withdrawn money from within their account.

"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."

Of the one-third (35%) who have withdrawn money from their TFSA, the top reasons for doing so were:

• Paying off debt – 25%
• Making a large or special purchase – 24%
• An emergency – 20%
• Paying day-to-day expenses – 19%
• Purchasing something for a home – 11%
• Buying a home – 10%

TFSA fast facts – 2019 RBC Financial Independence in Retirement Poll

TFSAs vs. RRSPs	National	18-34	35-54	55+	Male	Female
Yes – I have a TFSA	57%	52%	51%	65%	58%	55%
Yes – I have an RRSP	52%	40%	62%	52%	55%	49%
Prefer TFSAs over RRSPs	50%	43%	41%	64%	52%	49%
Estimated current market value	National	18-34	35-54	55+	Male	Female
My TFSA	$42,300	$33,300	$36,300	$51,500	$48,100	$36,500
My RRSP	$96,367	$47,066	$80,612	$139,870	$108,299	$83,614
Top 5 holdings in TFSAs	National	18-34	35-54	55+	Male	Female
Savings accounts & cash	42%	50%	42%	37%	40%	43%
Mutual funds	28%	30%	26%	27%	31%	24%
Stocks	19%	22%	17%	20%	28%	11%
GICs or term deposits	15%	11%	11%	20%	16%	14%
ETFs (Exchange-traded funds)	7%	8%	6%	7%	10%	4%
Bonds	6%	7%	4%	6%	8%	3%
Top reasons for using a TFSA	National	18-34	35-54	55+	Male	Female
Saving for my retirement	38%	30%	41%	40%	41%	35%
Saving for an emergency	35%	39%	34%	33%	33%	37%
Shelter savings from taxes	32%	20%	26%	42%	33%	30%
Everyday savings	25%	36%	22%	20%	24%	25%
Greater withdrawal flexibility	14%	12%	11%	18%	15%	13%
Saving for large/special expense	14%	23%	13%	9%	12%	16%
Saving to purchase a home	10%	27%	6%	2%	8%	12%
Saving to renovate my home	9%	12%	8%	6%	10%	7%

About the 2019 RBC Financial Independence in Retirement Poll
These are a selection of findings of the 29th annual RBC RRSP Poll, conducted by Ipsos from November 20 to 26, 2018 on behalf of RBC Financial Planning, through a national survey of 2,000 Canadians aged 18+ who completed their surveys online. Where appropriate, attitudes and opinions are tracked back to previous years' surveys. Quota sampling and weighting are employed to balance demographics to ensure that the sample's composition reflects that of the adult population according to Census data and to provide results intended to approximate the sample universe. The precision of Ipsos online polls is measured using a credibility interval. In this case, the poll is accurate to within ±2.2 percentage points had all Canadian adults been polled. All sample surveys and polls may be subject to other sources of error, including, but not limited to coverage error, and measurement error.

About RBC's financial planning advice and unique MyAdvisor service
RBC Financial Planning and rbc.com/savingsspot offer planning, budgeting and savings advice and resources and the RBC Retirement Planning website can help you plan for 30 years or more in retirement. This financial advice is complemented by a free service unique to RBC – MyAdvisor – which connects clients to advisors and financial planners for face-to-face, real-time video or phone meetings, where together they can view and adjust a client's comprehensive financial picture. In addition, Discover & Learn offers free online advice, resources and tools for Canadians who want to get more from their day-to-day banking, protect what's important, save and invest, borrow with confidence or take care of their businesses.

SOURCE RBC Royal Bank

Media contact: Kathy Bevan, RBC Communications, 647-618-2287, [email protected]

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