BMO Bank of Montreal
TSX : BMO
NYSE : BMO

BMO Bank of Montreal

November 08, 2011 09:00 ET

REPEAT-BMO Annual TFSA Report: TFSA Turns Three - Adoption Increases Yet Canadians Remain Uncertain on How to Maximize Their Investment

- Nearly half (44 per cent) of Canadians hold a TFSA - up 8 per cent from 2010

- Almost 40 per cent are unaware of what investments are eligible

- Canadians contribute on average $3700 to their TFSAs per year

TORONTO, ONTARIO--(Marketwire - Nov. 8, 2011) - As the third anniversary of the Tax-Free Savings Account (TFSA) approaches, BMO Bank of Montreal today announced the results of its Annual TFSA Report, which reveals that, despite an increasing adoption rate and healthy contribution levels, Canadians are still unclear on the fundamentals of TFSAs.

The survey, commissioned by BMO Bank of Montreal and conducted by Leger Marketing, arrives as Financial Literacy Month kicks-off in Canada and showed that despite the fact that 44 per cent of Canadians currently have a TFSA, few know what investments can be held within one:

  • More than one-third (37 per cent) have no idea what investments are eligible, unchanged from the 2010 report
  • Barely more than half of respondents (52 per cent) considered cash to be an eligible investment option within a TFSA (up 7 per cent from 2010)
  • One-third (32 per cent) knew that mutual funds are eligible within TFSAs, up 12 per cent from 2010; while the same proportion (33 per cent) knew GICs can be included, up from 26 per cent in 2010

"The numbers show that while this investment tool is continuing to gain traction among Canadians, we are still seeing some confusion regarding how to make the most of out a TFSA plan," said David Heatherly, Vice President, BMO Bank of Montreal. "A TFSA offers a variety of ways to tax shelter investments within a number of different investment vehicles, making TFSAs a suitable and sensible option for just about any type of investor."

The survey also found that Canadians are contributing an average of only $3700 per year to their TFSAs, leaving valuable contribution room on the table.

"Tax implications should be a key consideration for any investment decision. The main point of differentiation between TFSAs and other investment products is that the earnings are tax-free and allow for significant tax sheltered wealth and growth opportunities," said Mr. Heatherly.

Mr. Heatherly added that a lack of awareness regarding the regulations around TFSA contributions and withdrawals has been a point of concern since TFSAs were introduced three years ago. However, BMO's Annual TFSA Report suggests the level of awareness is improving as the vast majority (87 per cent) of TFSA investors indicated they know the regulations – a good sign as Financial Literacy Month gets underway in Canada.

"Essentially, once you reach your contribution limit for the year, you cannot reinvest or return money that has been withdrawn from your TFSA in the same year," said Mr. Heatherly. "However, that withdrawal amount gets added to the contribution room available in the year following. While that has caused some confusion, this is a well-designed investment product with a lot of financial upside, and Canadian investors appear to be doing their homework."

Other Key Findings:

  • British Columbians are more likely to say they are knowledgeable about TFSAs than those in Quebec (70 per cent vs. 53 per cent respectively).
  • Men are more likely to say they are very knowledgeable about TFSAs compared to women (19 per cent vs. 12 per cent).
  • Those aged 55+ are the most likely to have a TFSA than those under 55 (54 per cent vs. 39 per cent respectively). The same is true about those without children (48 per cent vs. 36 per cent) and those with a university education (54 per cent).

TFSA Basics:

  • Canadians aged 18 and older can contribute up to $5,000 per year into a TFSA. Any unused contribution room from the previous year can be added to the contribution room for the following year. In addition, any withdrawals can be re-contributed the following year without affecting your annual contribution limits.
  • You can hold the same investments in a TFSA as you could in a registered retirement savings plan, including GICs, bonds, cash, mutual funds and stocks.
  • Contributions to TFSAs are not deductible for tax purposes, and withdrawals of contributions and earnings from the account are not taxable.

To learn more about BMO's TFSA offering, please visit http://www.bmo.com/home/personal/banking/investments/tax-free/tfsa.

BMO offers several helpful tools and resources to help Canadians make sense of their investments and minimize the taxes they pay. BMO recently launched BMO SmartSteps for Investing, a program designed to help Canadians make sense of savings and investing and help them keep more of their money, stay on track with their investments and grow their money for the future. Please visit www.bmo.com/smartinvesting.

The survey was completed on-line from October 17th to October 20th, 2011, with a sample of 1508 Canadians,18 years of age or older. A probability sample of the same size would yield a margin of error of 2.5 per cent, 19 times out of 20.

Contact Information