How do TFSAs work?

By Andrew Rickard | February 08 2016 10:00AM

About half of Canadians have a Tax Free Savings Account (TFSA), but in a recent study only 3% could correctly answer a series of true and false questions about how they work.

A survey conducted for BMO Bank of Montreal reveals that 55% of Canadians have a TFSA, and those who do have an average account balance of $17,133. While 67% of the respondents said they had "some knowledge" of the rules governing TFSAs and 17% indicated that they were "very knowledgeable", only 3% were able to provide correct answers to eight true and false questions.

BMO points out that only about one in four of those surveyed (24%) were able to correctly identify the maximum annual TFSA contribution limit of $5,500. This does, however, represent a slight improvement over the last two years: 22% got it right in 2014, and 19% in 2013. Overall 21% of the Canadians were able to give the correct response to six or seven of the eight questions, but 14% were not able to answer any of the questions at all.

10% of Canadians had trouble remembering how much they have already deposited into their TFSAs and admitted that they had over-contributed. Asked who should be keeping track of the deposits, 85% said it was their financial advisors’ responsibility.