8 key things about TFSAs and how Canadians use them

By Julie Cazzin on December 18, 2018
Estimated reading time: 3 minutes

A BMO study shows TFSA usage is climbing but we're sorely lacking when it comes to understanding limits and tax penalties

(Getty Images)

TFSAs have been with us now for 10 years, and Canadians are cheering the much-anticipated annual contribution rise to $6,000 for 2019. In fact, the saving vehicle has become as much loved as hockey, poutine, and Tim Horton’s coffee. So this year’s BMO annual TFSA report, conducted by Pollara, offers some key insights into Canadians and their TFSA behaviour.

Perhaps the most important finding: while Canadians are increasingly turning to Tax-Free Savings Accounts (TFSAs) for their savings and investment goals, knowledge of key rules regarding the accounts remains low. “Each year, we’re seeing Canadians get increasingly comfortable with the TFSA,” says Mathieu Lepine, head of term investments for the BMO Financial Group. “As Canadians of all age groups continue to look at these accounts, it’s important that they track how much is being contributed. The TFSA gives Canadians the ability to grow their savings and investments tax-free and carry over unused contribution room each year, but those benefits can be negated if tax penalties are being incurred due to over-contribution.”

Here are 8 key findings from the study on our love-affair with TFSAs

The number of people using TFSAs is climbing, from 56% of Canadians last year to 69% this year.
The total amount Canadians hold in TFSAs is up 21 percent over the past two years. Canadians hold an average of $27,053 in their TFSA this year, up from $22,008 in 2017 and $17,382 in 2016.
Contributions are down slightly from 2017, with the average contribution dropping 3.3% to $4,826 this year.
About 33 percent of Canadians are not aware of the maximum contribution amount.
Only 11 percent knew the contribution limit was going up to $6,000 annually starting in 2019. And a huge percentage of respondents—66%—didn’t know that there was a change.
Taxes aren’t top of mind. Fully 40% of respondents didn’t know there was a tax penalty for over-contribution, up six percentage points from last year.
Half of Canadians say they will use the money for retirement and 39% plan to use it as an emergency fund.
Regionally, Canadians in B.C. and Alberta were more likely to cite not having enough money (66 percent and 54 percent respectively) as the top reason for not reaching the contribution limit.

The bottom line? While there are economic challenges in the Western provinces especially that are making it harder for Canadians to put money aside, it’s worth considering a “set-it-and-forget it” pre-authorized savings plan for your TFSA, where you contribute a set amount every month to the plan—an effortless way to save without having to think about it.

“There is an opportunity for Canadian savers to better understand this account and make sure that they are getting the most out of it,” says Lepine. “There are a lot of great online resources to stay on top of any changes in contribution limits, and we’d encourage savers to have a conversation with their bank—they can help to track contributions and make sure they are within the limits.”

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