2 articles TFSA

2022 TFSA survey results

The results are in! HighInterestSavings.ca ran an online survey for 4 weeks between January and February 2022 about how Canadians use their TFSAs. We received 455 responses.

High uptake for both TFSAs and RRSPs

98% of respondents currently have a TFSA, compared to 85% who currently have an RRSP or RRIF.

95% of respondents intend on contributing to a TFSA this year, whereas only 46% of eligible respondents (those who can contribute to an RRSP) intend on contributing to an RRSP.

The emphasis on the TFSA continues with the results around maxing out your contributing room. 76% of respondents max out their TFSA contribution room every year, whereas only 39% of eligible respondents (those who can contribute to an RRSP) max out their RRSP contribution room every year.

More than a savings account, despite its name

4% of respondents (20 out of 455 people) did not previously know that they could use their TFSA for more than just a savings account or GIC. For everybody else, despite knowing that they can hold other investments in their TFSA (such as stocks, bonds, mutual funds, ETFs, and options) only 40% of them actually do so.

The most common use case for the TFSA (at 64%) is for retirement or long-term savings. 6% have a specific short- or medium-term use in mind, and 27% aren’t sure, but are just making use of the tax-free aspect.

The TFSA has room for improvement

15% of respondents have over-contributed to their TFSA!

The only open-ended question on our survey was about how to improve the TFSA, and 337 people had thoughts on this. 4% of them specifically said that the TFSA is good as-is. Two people said to scrap the TFSA altogether.

The overwhelming most popular suggestion (at 61%) was to increase the contribution limit. Some of these suggestions had an additional comment that seniors should be able to contribute more than others.

Given that a meaningful number of Canadians have over-contributed to their TFSA, it’s no surprise that many suggestions were related to this. 10% of suggestions were about allowing re-contributions within the same year, or allowing easier transfers between financial institutions (since the only real trick otherwise is to do the “December manoeuvre“). 9% of suggestions were about having better reporting; the CRA’s online portal has a summary of your TFSA contributions, but this is known for being very slow to update. Technically, financial institutions do not have to send your TFSA contribution information for a given year until the end of February of the following year, and even then this information is not always complete.

7% of suggestions were related to better educating Canadians about the TFSA. This could include calling it a TFIA (Tax Free Investment Account); educating people on what investments can go in the TFSA; promoting it better; and making the rules around contributions and re-contributions clearer. Three respondents want a clearer definition of what is considered inappropriate stock trading in a TFSA.

We received 6 or 7 suggestions each (2% of suggestions) for these ideas:

  • Offer higher interest rates in a TFSA (although that’s up to each financial institution), including an idea to force TFSA rates to be guaranteed for a year (outside of a GIC)
  • Expand what investments can be put in a TFSA, such as a business, or a property, or metals
  • Make USD dividends tax exempt in a TFSA, just like they are in an RRSP

Other ideas include:

  • Remove or reduce the over-contribution penalty
  • Set a lifetime contribution limit cap
  • Allow Canadians to claim a capital loss made within a TFSA
  • Have the government match a certain percentage of contributions to encourage new deposits
  • Allow the transfer of TFSA funds to dependents
  • Increase the CDIC insurance coverage limit so that you are less likely to need to open multiple TFSA accounts
  • Allow people under 18 to contribute
Forum/Topic Started Last post Posts

Tax Free Savings Accounts

When is Achieva going to raise their rates?

March 14, 2022
10:32 am by
Alexandra
View

March 20, 2022
9:02 am by
Shawguy
View

4

Tax Free Savings Accounts

Waivers of TFSA overcontribution tax

January 14, 2022
10:33 pm by
Norman1
View

March 3, 2022
1:18 pm by
Loonie
View

36

Tax Free Savings Accounts

When are TFSA transactions reported to the CRA?

February 23, 2022
9:22 am by
SaverJunior
View

February 23, 2022
9:48 am by
Norman1
View

2

Tax Free Savings Accounts

The December Manoeuver question

December 3, 2021
2:15 pm by
frugal lady
View

January 15, 2022
11:30 am by
HermanH
View

44

Tax Free Savings Accounts

tax free savings account

February 15, 2009
2:58 am by
bert
View

January 1, 2022
12:36 pm by
RetirEd
View

50

Tax Free Savings Account year-end tips

The end of the calendar year is a good time to think about Tax Free Savings Accounts (TFSA) for a couple of main reasons:

  • You get an extra $5,500 contribution room on January 1, 2013 (up from $5,000 in previous years)
  • The end of the year is the best time to withdraw money from a TFSA if you want to minimize the time until the contribution room created from the withdrawal is available again. A more concrete example of this: it is easiest to move money from one TFSA to another TFSA by withdrawing from one TFSA at the end of the year and depositing to another TFSA at the beginning of the next year

Rules

Tax Free Savings Accounts have caused some confusion since they were introduced (as evidenced by some of the posts in this forum). For a comprehensive overview about TFSA rules and benefits, check out the Canada Revenue Agency site.

The biggest confusion around TFSAs is typically regarding withdrawals: you can withdraw money from a Tax Free Savings Account to a non-TFSA account during the year, but that does not create contribution room to deposit money back into a TFSA until the following year. As such, frequent withdrawals and deposits (unless in small amounts) can bring you over your contribution limit.

Technically, your available contribution room (in other words, the amount of money that you can deposit) for the current year remains fixed all year, and is made up of:

  1. New contribution room available on January 1 ($5,500 in 2013)
  2. Unused contribution room from the previous year
  3. Withdrawals made in the previous year (including any interest earned that you withdrew)

A very simple example: Suppose you had never opened a TFSA before, and deposited exactly $20,000 into a TFSA in January 2012, maxing out your contribution room. Then, you withdraw $5,000 in February 2012. You cannot re-deposit that $5,000 into a TFSA without penalty until January 2013.

You can transfer money between Tax Free Savings Accounts at different institutions during the year without adversely affecting your contribution limit, although some institutions will charge a transfer fee.

There are some good example scenarios out there that go beyond the basics, such as here, here and here.

Unfortunately, due to the fact that you can open a TFSA at almost any financial institution, there isn’t an easy way for the government give you a real-time report of your contribution room during the year. (I remember seeing such a report once, and it was inaccurate.) Therefore, you have to keep close track of your contributions and withdrawals yourself.

Beware of teaser interest rates

Because it is not as easy to move money in and out of a TFSA as with other bank accounts, you are slightly more locked in to a financial institution’s TFSA account. Thus, you are more vulnerable to fluctuating interest rates. Some banks have, in my opinion, abused this fact by offering higher rates at the beginning of the year and then dropping the rate a few months later for more reasons than just “market fluctuations”. You and your money are a bit stuck at that point. I am not predicting that this will happen again, but it is definitely something to be suspicious about when you see a higher than usual TFSA rate at the beginning of the year.

Some examples:

  • Canadian Tire Financial TFSA:
    January 8, 2010: 3.15%; May 7, 2010: 2.15%
    December 30, 2010: 3.50%; March 31, 2011: 2.50% (even though they had advertised that it was “not a temporary promotional rate”)
    December 29, 2011: 2.75%; March 31, 2012: 2.00%
  • ING Direct
    Jan 1, 2010: 3.00% (was 1.20% on Dec 15, 2009); April 28, 2010: 2.00%
    Dec 30, 2010: 2.00% (was 1.50% on Oct 2, 2010); August 20, 2011: 1.50%
    January 1, 2012: 2.00%; April 1, 2012: 1.60%; March 20, 2012: 1.40%

See this comparison chart for some historical data on rates.

More than just a savings account

You can open a TFSA trading account for investments (such as in stocks) and you won’t be taxed on the gains made within the TFSA. However, you are also subject to more volatility compared to investing outside of a TFSA: you aren’t able to deduct capital losses within a TFSA from other taxable gains, while you are able to deduct capital losses outside of a TFSA.

You can also open other accounts, such as a GIC, within a TFSA. See this thread for some discussion around this.

Note: re-posted from here; originally published November 25, 2011; updated December 19, 2012

Forum/Topic Started Last post Posts

Tax Free Savings Accounts

When is Achieva going to raise their rates?

March 14, 2022
10:32 am by
Alexandra
View

March 20, 2022
9:02 am by
Shawguy
View

4

Tax Free Savings Accounts

Waivers of TFSA overcontribution tax

January 14, 2022
10:33 pm by
Norman1
View

March 3, 2022
1:18 pm by
Loonie
View

36

Tax Free Savings Accounts

When are TFSA transactions reported to the CRA?

February 23, 2022
9:22 am by
SaverJunior
View

February 23, 2022
9:48 am by
Norman1
View

2

Tax Free Savings Accounts

The December Manoeuver question

December 3, 2021
2:15 pm by
frugal lady
View

January 15, 2022
11:30 am by
HermanH
View

44

Tax Free Savings Accounts

tax free savings account

February 15, 2009
2:58 am by
bert
View

January 1, 2022
12:36 pm by
RetirEd
View

50