Canadian taxpayers are expected to contribute almost $5,000 to their tax-free savings accounts (TFSAs) this year, according to a new survey from BMO.
Based on a survey conducted by Pollara, BMO reports that Canadians are expecting to contribute an average of $4,884 to their TFSA by the end of 2014, which it says represents an increase of 34% from last year.
Yet, the bank also reports that many Canadians remain unfamiliar with the rules of holding a TFSA. It says that the survey found that, while two-thirds of respondents claim to be knowledgeable about TFSAs, only 22% correctly identified the $5,500 contribution limit, and 77% aren’t aware of the over-contribution penalties. Indeed, it notes that about 10% of TFSA holders report that they have over-contributed to their account in the past, which has cost an average of $412.50 in penalties.
“There are many upsides to using TFSAs for a variety of savings and investing goals, most notably its flexible access to funds — uncommon among registered savings plans,” said Ryan ffrench, director, term investments, BMO Financial Group. “However, this benefit, if not understood or monitored on a regular basis, can also create challenges and end up costing investors if funds are re-contributed to the account incorrectly.”
According to the report, the use of TFSAs has remained stable from last year, with 48% of Canadians having an account. On average, Canadians have over $17,490 in their TFSAs, it says. And, it reports that the investment mix has remained unchanged too, with about 60% in cash, 25% in mutual funds, and 20% in GICs.
It says that the most common use of TSFAs is retirement savings (48%) and emergency funds (43%), followed by savings for a major purchase (25%), and saving for a vacation (19%).
The results are based on a survey of over 1,000 adults, conducted between Oct. 7 and 9. The margin of error is 2.7%, 19 times out of 20.