More Canadians have TFSAs than RRSPs — but they’re not using them to invest

By: Lisa Coxon on August 20, 2019

More senior Canadians have Tax-Free Savings Accounts (TFSAs) than Registered Retirement Savings Plans (RRSPs), but they’re using them for “savings storage” rather than investments, according to a new RBC poll.

It was the first time the annual RBC Financial Independence in Retirement Poll — now in its 29th year — found more TFSAs (57%) than RRSPs (52%) among Canadians aged 55 and older. In fact, TFSAs are now the preferred savings option.

Two-thirds (64%) said they would choose a TFSA over an RRSP. That wasn't always the case, according to the press release that accompanied the poll’s findings. In the past, senior Canadians were primarily interested in RRSPs as a savings method. 

But the more surprising finding is that Canadians aren’t using TFSAs to their full advantage. Rather than investing their money into mutual funds, stocks, or GICs/term deposits under a TFSA umbrella and benefiting from the tax-free returns, Canadians are simply using their TFSAs as another generic savings account.

"Canadians are drawn to the flexibility of saving cash in their TFSAs, but it shouldn't stop there,” said Stuart Gray, director of the Financial Planning Centre of Expertise at RBC, in a press release. 

“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.”

According to the poll, 42% of Canadians are using their TFSAs for savings accounts and cash; 28% are using them for mutual funds; 19% are using them for stocks; 15% are using them for GICs/term deposits; and 7% are using them for exchange-traded funds, or ETFs.

Gray did add, however, that the very name “Tax-Free Savings Account” could in itself be misleading Canadians. While the majority (74%) understand that TFSAs can be used for both cash and investments, the poll revealed that 43% of Canadians believe that TFSAs are just another savings account and not a place to see their money grow.

“The magic happens when you invest the money within your TFSA and gain the benefit of compounding, which helps your earnings generate even more earnings,” said Gray. “You gain interest not only on your original investment, but also interest on your interest.”

For this to work, though, that money needs to remain largely untouched. According to the poll, 65% of Canadians said they haven’t withdrawn money from their account (though the “in how long” part of this finding wasn’t clear).

The one-third (35%) of Canadians who have taken money out of their TFSA listed the top reason for doing so as paying off debt (25%), followed by making a large or special purchase (24%), and an emergency (20%).