While nearly half of Canadians have a tax-free savings account (TFSA), many are not taking advantage of the unique benefits the account offers for saving, according to a new poll.
The CIBC poll, conducted by Harris/Decima, finds that 47% of Canadians have opened a TFSA in the nearly five years since the account’s introduction by the federal government. But among those with a TFSA, just 47% say they have made a contribution in 2012. Also, among TFSA holders, 41% indicate they aren’t holding funds in their account for any specific reason other than to avoid paying tax on interest or investment returns. Only about one-third (36%) of TFSA holders have earmarked the savings for their retirement.
“You will get more out of your TFSA if you have a plan for the funds you invest in it,” commented Colette Delaney, executive vice-president, retail and business banking, with CIBC. “These poll results suggest that some Canadians may not see the full potential of their TFSA, such as using it as part of their retirement strategy, and that highlights the need for a conversation with an advisor to help get more out of your savings.”
Younger Canadians most likely to make TFSA withdrawals
Among those polled, those between 18 and 34 years of age were among the most likely to say they have withdrawn money from their TFSA this year (25%), compared with the national average of only 17%.
Delaney says it is important to understand TFSA rules, which allow Canadians to contribute $5,000 per calendar year and prevent the re-contribution of funds they withdrew in the same calendar year.
CIBC offers the following tips for Canadians to help maximize their TFSA savings:
Meet with an advisor to review savings goals This will help Canadians ensure that they are using their TFSA as part of a financial plan that aligns with long- and short-term goals.
Contribute regularly Making regular contributions to a TFSA is often easier than coming up with one annual lump sum contribution. Automatic contributions can be set up through an individual’s bank to coincide with his or her pay schedule.
Track day-to-day spending Effective cash flow management is essential to ensuring that funds are available for regular TFSA contributions. Canadians can track their spending by maintaining a budget and using mobile banking tools.