Thursday, April 5, 2012

Five things you may not know about TFSAs

By Denise Barrett

Image of a woman counting her savings to contribute to a tax-free savings account.After taking more than three years to get acquainted, Canadians still don’t know the tax-free savings account (TFSA) as well as they should. The TFSA lets you stash extra cash for just about anything – rainy-day savings, a new house or retirement – without paying any tax on the growth within the account or on withdrawals.

Still, since the TFSA was introduced in 2009, less than one-third of Canadians have opened one. Here are five of the most common misunderstandings about the TFSA.

1. It’s called a savings account, but can hold just about anything.

From our earliest days, a “savings account” was where our pennies went when they came out of the piggy bank. The name suggests deposits, safety and low rates. But almost any investment you can hold in a registered retirement savings plan (RRSP) can also go into your TFSA: bonds, stocks, mutual funds, exchange-traded funds, options, etc.

Personal finance expert and author Kelley Keehn is among those who wish the government had chosen a different name for the TFSA. “Many banks and financial institutions advertise a set percentage for their cash TFSAs and it’s very low,” she says. “Canadians see the 2% and think ‘those TFSAs don’t pay much.’ In reality, the TFSA is a savings shelter like an RRSP and you need to choose the investment that goes within it.”

catch the full article here: