With the growing popularity of Tax-Free Savings Accounts (TFSAs), a key question has started to come about across Canada: what's a better investment TFSAs or RRSPs? A new poll finds Canadians favour TFSAs.
Contributions to the Registered Retirement Savings Plan (RRSP) are on an annual decline. Digital Journal recently reported that a significant portion of Canadians claim they don’t have enough money to save or invest.
This may come as no surprise then that a new study found that there is a growing number of Canadians that prefer to put their money into TFSAs. Financial experts concur TFSAs are better for low- and middle-income Canadians, while RRSPs should be invested in by wealthier Canadians.
Bank of Montreal published results from its study last week that showed if Canadians were given a limited amount of money to invest in 42 percent would transfer the funds into a TFSA, while 37 percent would put it towards a RRSP.
There were two reasons why Canadians opted for the TFSA: it’s tax-free and can be withdrawn at anytime without a penalty or a tax.
“Whether saving for travel, the purchase of a home, a child's education or retirement, it's encouraging to see that Canadians are investing in their future by contributing to TFSAs and RRSPs," said Serge Pépin, Vice President, Investment Strategy, BMO Asset Management Inc., in a press release. "Both programs play important roles in helping Canadians save and invest in a tax-efficient manner. They complement each other and should be used in unison, so it's important that investors understand their differences."
Since its introduction in 2009 by Finance Minister Jim Flaherty, nearly half of Canadians have opened an account. There are other benefits: all TFSAs have a maximum $5,500 contribution limit each year, up from $5,000, there are no income taxes paid on investments and TFSAs can hold an array of investments.
“Ideally, Canadians should be contributing to both a TFSA and an RRSP because they each offer distinct advantages," concluded Pepin.