RBC Financial says Tax Free Savings Accounts (TFSAs) are largely misunderstood by Canadian consumers. Although many will use their TFSAs for savings storage, many forget to invest those funds to benefit from the tax-free returns they could be enjoying.

More, the 29th annual RBC Financial Independence in Retirement poll, conducted by Ipsos, found for the first time that more Canadians have TFSAs than Registered Retirement Savings Plans (RRSPs): 57 per cent reported having TFSAs, while only 52 per cent report having an RRSP.

“TFSAs are now the preferred option of Canadians over 55 who, in the past, have primarily focused on RRSPs. When asked which plan they would choose if they could only contribute to one, a resounding two-thirds (64 per cent) selected TFSAs over RRSPs,” say the report’s authors.

They say savings accounts and cash make up the majority of assets invested in TFSAs. “Canadians are drawn to the flexibility of saving cash in the TFSAs, but it shouldn’t stop there,” says Stuart Gray, director at RBC’s Financial Planning Centre of Expertise. “The true advantage of contributing money to your TFSA is to help you reach your goals, not just to have a short-term savings account. The magic happens when you invest the money within your TFSA and gain the benefit of compounding, which helps earnings generate even more earnings.”