BMO Annual TFSA Study: TFSA Contributions Rise Amid Pandemic
As Canadians navigate the uncertainty of the COVID-19 pandemic, they are also focused on saving for their future. According to BMO’s annual TFSA survey, a majority of Canadians were able to contribute what they were expecting to their TFSAs in 2020 and many were able to increase their overall contributions. But while Canadians continue to favor TFSAs, many are not taking full advantage of them.
The annual report revealed:
- Contributions held steady: Despite the global pandemic, more than half (53 per cent) of Canadians say they contributed the amount they expected this year – only slightly down from 2019 (58 per cent).
- Popularity continues to rise: A little over two thirds (68 per cent) of Canadians now say that they have a TFSA. The popularity of TFSAs has been strong over a five-year period, increasing more than 23 per cent. According to this year’s survey, Millennials and Canadians over 55 are the most likely to have a TFSA (72 per cent).
- Average amount held in TFSAs spikes: On average, Canadians are holding $30,921 in their TFSAs – up over nine per cent from 2019. Regionally, those in the Prairies hold the least in their TFSAs on average at $24,495 while those in B.C. hold the most on average at $34,880.
“Despite such a challenging year, it’s encouraging to see that Canadians are resilient when it comes to savings,” said Nicole Ow, Head, Term Investments, BMO Bank of Montreal. “With a higher level of savings, investors are turning to options like TFSAs – a flexible investment and saving option. If anything, 2020 has highlighted the importance of maintaining a savings plan to build rainy day funds or invest for longer-term goals and a TFSA is the right vehicle for these various scenarios.”
According to BMO Economics, it is estimated that excess savings reached $150 billion and disposable income was up 10.6 per cent above year-ago levels by the third quarter. With healthy savings and disposable income, it could support activity and economic recovery in the year ahead.
Leaving money on the table
Popularity aside, Canadians are not, on the whole, maximizing the benefits that they could reap from TFSAs:
- For Canadians that have a TFSA, cash makes up the primary investment – 38 per cent of the TFSA – followed by mutual funds and stocks at 23 per cent and 18 per cent respectively. Investors in Atlantic Canada have the highest proportion of cash in their TFSAs at 47 per cent. Quebec and Alberta are sitting close behind with investors in both provinces having 40 per cent of their TFSAs made up of cash.
- There is a gap for investors with knowing what can be included in a TFSA. Nearly a quarter (24 per cent) of Canadians are not aware what investments are eligible.
- Only half (49 per cent) of Canadians are aware that a TFSA account can hold both cash and at least one other type of investment. A quarter of Canadians indicated that they don’t know what can be included, and 12 per cent believe a TFSA is cash only.
“When investing, it’s important to make sure that the money being invested is working for you,” added Ms. Ow. “For investors with TFSAs – especially younger investors that have a longer time horizon for tax free growth – consider sitting down with an advisor or financial planner to create a tailored plan which could include investments like GICs, mutual funds or ETFs to help you meet your financial goals. TFSAs can be a great vehicle to grow savings for short or long-term goals, but it’s important to have the money that is contributed working for the investor.”
For more information on BMO Tax-Free Savings Accounts, opening an account, or looking for help, please visit www.bmo.com/tfsa. As well, visit bmo.com/myplan to learn more about working with a dedicated investment professional to put a plan into action and help make real financial progress.