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BMO Savings Study: Cash is King in TFSAs, as Many Canadians Miss Out on Higher Returns from Longer-Term Investments

TORONTO, Jan. 11, 2022 /CNW/ - Canadians are prioritizing saving as they continue navigating the challenges of the global pandemic and amid expectations of rising inflation in the coming year. BMO's annual savings study found that among the 63 per cent of Canadians with a Tax-Free Savings Account (TFSA), 67 per cent contributed the same or more than they have contributed historically.

BMO Economics estimated that excess savings reached nearly $300 billion late last year, while disposable income increased by approximately 4.5 per cent in 2021.

The survey reveals insights into Canadians' knowledge and use of TFSAs:

  • Cash is King: Cash is the most popular asset – the majority (56 per cent) of Canadians have cash in their TFSA and 29 per cent say cash makes up at least three quarters of their holdings.
  • Knowledge Gap: While 73 per cent of Canadians consider themselves knowledgeable about TFSAs, only half (49 per cent) of Canadians are aware that a TFSA account can hold both cash and at least one of the other investments.
  • Holdings Growth: Despite the ongoing challenges from the pandemic, Canadians on average hold $34,917 in their TFSAs, a 13 per cent increase from 2020.
  • Financial Goals: Canadians primarily use their TFSA accounts for various financial goals, with 44 per cent using a TFSA for retirement savings, 43 per cent using it as a savings account, and just 15 per cent using the account as a means to achieve financial independence as early as possible.
  • Barriers to Contribution: Lack of funds (41 per cent) and other expenses (32 per cent) are the largest factors preventing Canadians from contributing to their TFSAs this year. Only seven per cent of Canadians say that they did not contribute due to pandemic related reasons – a 10 per cent decrease from 2020.

"Throughout the uncertainty of the pandemic, Canadians have remained resilient and optimistic – continuing to prioritize savings and contributing to their TFSAs," said Nicole Ow, Head, Retail Investments, BMO Bank of Montreal. "2022 is likely to bring new challenges with growing inflation and economic uncertainty as the pandemic continues into another year. We encourage Canadians to work with an advisor to maximize the benefits of TFSAs and other investment vehicles, such as RRSPs, to help make real financial progress and enable them to meet long- and short-term financial goals."

Different Registered Plans for Different Financial Goals

While TFSAs remain a popular investment vehicle, there is a lack of awareness about other savings accounts. The survey found:

  • Registered Retirement Savings Plan (RRSP): 74 per cent of Canadians consider themselves knowledgeable about RRSPs, but younger investors (aged 18-34) are 12 per cent less likely to be knowledgeable about the account. Only 64 per cent of Canadians know the difference between an RRSP and TFSA, a 4 per cent decrease from 2020 and a 10 per cent decrease from 2015.
  • Registered Education Savings Plan (RESP): Less than half (49 per cent) of Canadians are knowledgeable about RESPs. Knowledge levels are lowest among single, unmarried Canadians (37 per cent).
  • Registered Disability Savings Plan (RDSP): Only 16 per cent of Canadians are knowledgeable about RDSPs. Awareness is lowest among Canadians 55 years and older (12 per cent), women (12 per cent) and those who are widowed, divorced or separated (11 per cent).

"While Canadians are aware there are a range of investing solutions available to help them achieve different financial goals, working with a professional advisor can help you understand all your options, determine the strategies that best suit your objectives, experience and risk appetite, and realize the full benefits of having a personalized financial plan," said Ms. Ow.

For more information on Tax-Free Savings Accounts and Registered Retirement Savings Plans, opening an account, or other assistance, please visit www.bmo.com/tfsa or www.bmo.com/rrsp.

The BMO Savings Study was conducted by Pollara Strategic Insights via an online survey of 1,500 adult Canadians conducted between October 26th and 29th 2021. The margin of error for a probability sample of this size is ± 2.5%, 19 times out of 20.

About BMO Financial Group

Serving customers for 200 years and counting, BMO is a highly diversified financial services provider - the 8th largest bank, by assets, in North America. With total assets of $988 billion as of October 31, 2021, and a team of diverse and highly engaged employees, BMO provides a broad range of personal and commercial banking, wealth management and investment banking products and services to more than 12 million customers and conducts business through three operating groups: Personal and Commercial Banking, BMO Wealth Management and BMO Capital Markets.

SOURCE BMO Financial Group

For further information: Media Contact: Colleen Hamilton, Toronto, Colleen.Hamilton@bmo.com, (416) 867-3996; Anke Suwanda, Toronto, Anke.Suwanda@bmo.com, (416) 867-3996