Although more than a third of Canadians have opened a tax-free savings account (TFSA), confusion still remains about what kinds of investments can be held in one, according to a survey commissioned by BMO Bank of Montreal and conducted by Leger Marketing.
TFSAs became available to Canadians on January 2, 2009, and were considered one of the biggest revolutions in Canada’s savings system since the introduction of the registered retirement savings plan more than 50 years ago.
Canadians can contribute up to $5,000 a year into a TFSA account, with any unused contribution room eligible to be carried forward to the next year.
Despite the fact that virtually any common investment can be invested in a TFSA, only 45% considered cash as an eligible investment option within the account. Only 20% knew you could invest mutual funds within a TFSA, and only 26% knew GICs could be included. More than a third have no idea what kinds of investments are eligible.
Getting financial advice is key to understanding the benefits and potential trade offs of putting money away in a TFSA (See “New tax-free savings account a potential boon for investors and financial institutions” – issue 993; November 4-10, 2008).