The Tax-Free Savings Account (TFSA) is coming in 2009 yet more than three-quarters of Canadians polled said they don’t know what a TFSA is, or only have limited knowledge of it.

Of those with some or full understanding of the TFSA, less than 70% knew about the key product features, namely the $5,000 annual tax free maximum and that funds are not taxed even when withdrawn.

Lack of understanding about the taxes paid on interest earned in a regular bank account seems to be one of the reasons many people don’t understand the opportunity to earn interest tax free, according to the survey sponsored by ING Direct.

The survey found that a quarter of Canadians are not sure or didn’t know they are required to pay tax on interest earned and close to another half of those polled said they have never paid tax on the interest earned in their bank account, mainly because they don’t earn enough interest.

“We feel there’s a lot of education that needs to take place between now and January, so that Canadians are fully aware of their options for saving come peak investment season,” says Peter Aceto, president & CEO of ING Direct.

Even those with a good understanding of the product were unaware that the tax-free accounts offer the ability to carry forward unused contribution room and that any amounts withdrawn can be put back into a tax-free account at a later date.

When asked what they are looking for in a tax-free account, in addition to the tax savings, more than half of Canadians said they want an account with no fees and a high interest rate.

When asked when they plan to withdraw money from a tax-free account, 20% of respondents said between two and 10 years.

Roughly one-in-five respondents said they plan to withdraw the money to make purchases, such as buying property, a car, house or cottage and 19% said they would use it to save or invest.

Angus Reid Strategies conducted the online survey from August 15 to 20 among a randomly selected, representative sample of 1,014 adult Canadians.