Canadians: Start Making Use of the Tax-Free Savings Account!

Tax Free Savings Account
Magnifying glass

Despite the advantageous investment vehicle the Bank of Canada affords Canadians with the Tax-Free Savings Account (TFSA), a recent survey has found that the majority of Canadians are choosing not to utilize these benefits.

The countrywide survey, commissioned by ING Direct and conducted by Angus Reid Public Opinion, found that of Canadians polled, more than half did not have a TFSA and nearly 15 per cent had never heard of the tax-efficient investment opportunity.

TFSAs have been available to Canadians for two years, yet only one third of Canadians have opted to open one for themselves, and of those that do not have one, half do not plan to open a TFSA in the next 15 months.

TFSAs allow Canadians to make up to $5,000 in contributions per annum, which can then be invested into any of several investment options within the TFSA, including money market funds, Guaranteed Investment Certificates (GICs), bonds, listed securities on designated stock exchanges and mutual funds. The return these investments make in the account are yours, tax-free. Plus the years you haven’t contributed are accrued, meaning if you opened a TFSA in 2011, you could also make contributions for the two years previous that you didn’t utilize; or invest $15,000 tax-free.

A graph showing the money saved using a TFSA
As an initiative to encourage more Canadians to utilize the tax-efficient investment opportunity that comes in owning a TFSA, ING Direct is offering to pay double the interest on its TFSA accounts from October 1 to December 31, 2010 which they have termed the 2011 TFSA Kick Start Account.

“The ability to save tax-free is one of the most significant vehicles Canadians have been given to build their investment portfolios,” president and CEO of ING Direct Peter Aceto says. “The earlier in the year contributions are made, the more beneficial tax-free saving can be.”

If you haven’t yet, consider opening your TFSA today, and discuss with a financial advisor the best investment option within this account to put your funds to optimal use. TFSAs are a great retirement savings directive. In putting your savings into a TFSA over 20 years, making only half the allowable yearly contribution and averaging a 5.5 per cent rate of return over this time, you will net over $11,000 in tax savings over leaving these funds in a taxable savings account.

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