Unsure of best approach for retirement, down payment on first home
Many Canadians are confused when it comes to the best way to save for the future, according to a survey from Toronto-Dominion Bank (TD).
While more than half of Canadians surveyed agreed that tax-free savings accounts (TFSAs) (59 per cent) and registered retirement savings plans (RRSPs) are a crucial part of their savings strategy (57 per cent), 27 per cent admit they don’t know the differences between the two financial products.
“Many Canadians do not fully understand key characteristics of a TFSA and an RRSP, such as the tax benefits and withdrawal considerations,” says Jenny Diplock, associate vice-president, personal savings and investing at TD.
When it comes to saving for retirement, RRSPs are often viewed as the better choice (61 per cent of survey respondents, compared to 22 per cent of respondents who feel TFSAs are better). In contrast, TFSAs are the preferred choice for Canadians surveyed who are saving for a home renovation (51 per cent compared to 13 per cent who prefer RRSPs), found the survey of 1,500 Canadians.
The TD survey also revealed mixed views when it came to the best way to save for a down payment on a first home: 41 per cent believed a TFSA is the best choice, compared to 25 per cent who felt an RRSP is the better option. Even experienced homeowners were unsure, as 15 per cent said they believed an RRSP was the right option to help save for a down payment on a new home (that isn’t their first), despite the associated tax implications, says the survey.
Some Canadians were even more unsure when it comes to the impact the two savings vehicles had on their taxes: 35 per cent of survey respondents said they don’t understand the tax implications of a TFSA, and another 30 per cent said the same when it comes to an RRSP. Furthermore, almost one in four (22 per cent) respondents said they would choose a TFSA to help reduce their taxable income for the following year, reaffirming a lack of understanding of how TFSAs work given that TFSAs do not allow you to reduce your taxable income, found TD.