Many account holders haven't made a contribution yet in 2012; younger Canadians most likely to withdraw funds

TORONTO, Aug. 27, 2012 /CNW/ - A new CIBC (CM: TSX; NYSE) Poll conducted by Harris/Decima reveals nearly half of Canadians (47 per cent) say they have a Tax-Free Savings Account, as the fifth year of the TFSA's availability approaches in 2013.  However, the poll also highlights a missed opportunity as only half of those with a TFSA have made a contribution so far this year, and many Canadians with a TFSA say they have no plans for the money they have saved in the account.

Highlights of the poll include:

• 47 per cent of Canadians say they have a TFSA
• Among those Canadians holding a TFSA, 44 per cent have a savings account only, 27 per cent have an investment account only, and 21 per cent of Canadians say they have both
• Among those Canadians holding a TFSA, only 47 per cent say they have made a contribution this year
• When asked what they were using their TFSA savings for, the leading response (41 per cent) among Canadians was that they had no plans for the funds
• BC residents were among the most likely in Canada to have a TFSA (52 per cent) while Atlantic Canadians were among the least likely (42 per cent)

"It is encouraging to see that almost half of Canadians have taken advantage of the Tax Free Savings Account, which gives them an additional option to help them reach their financial goals," said Colette Delaney, Executive Vice President, Retail & Business Banking, CIBC. "Given how versatile the TFSA is, there is an opportunity for more Canadians to either contribute to their existing TFSA, or to consider how opening a TFSA could help them achieve their savings goals sooner."

Many Canadians Say They Have No Plans for funds in their TFSA

While the TFSA has proven to be a highly flexible savings option to help Canadians work towards goals such as a major purchase or retirement, the poll also reveals that many Canadians say they have no plans for the funds they have invested in their TFSA:

• 41 per cent of Canadians with a TFSA say they have no immediate plans for these savings, they just want to avoid paying tax on interest earned or investment returns
• 36 per cent of Canadians with a TFSA say they plan to use funds in this account toward their retirement
• 30 per cent of Canadians with a TFSA say they plan to use funds in this account toward their emergency savings
• 17 per cent of Canadians with a TFSA say they plan to use funds in this account toward major purchases (home, car etc.)

Ms. Delaney noted that some Canadians are missing an opportunity to put the TFSA to better use within their financial plan, with so many in the poll saying they have no plans on how to use the funds in their TFSA.

"You will get more out of your TFSA if you have a plan for the funds you invest in it," commented Ms. Delaney. "These poll results suggest that some Canadians may not see the full potential of their TFSA, such as using it as part of their retirement strategy, and that highlights the need for a conversation with an advisor to help get more out of your savings."

There are some notable differences among demographics.  Canadians aged 18-24 were more likely to say they plan to use their TFSA savings for a major purchase (37 per cent), while those between 45-54 years of age say they plan to use their account for retirement (47 per cent).

Younger Canadians most likely to be making TFSA withdrawals

Younger Canadians say they plan to use their TFSA for shorter term goals such as major purchases or emergencies, which explains why they are the most likely to have made a withdrawal from their TFSA in the last year. Among Canadians with a TFSA account, those between 18-34 years of age were among the most likely to say they have withdrawn money from their TFSA this year (25 per cent), compared to the national average of only 17 per cent.

While the TFSA has proven to be a flexible account, it is important to understand annual contribution rules.  Canadian residents 18 and older are currently allowed to contribute $5,000 per calendar year.  This means if you have both a savings and an investment account, account holders are responsible for tracking their contributions to ensure they don't exceed the annual $5,000 limit.

While rules prevent Canadians from re-contributing the amount they withdrew within the same calendar year, Canadians are permitted to re-contribute the withdrawn amount the following year.

Example: Be Clear on Contribution Rules

For example, Timothy Smith, 36 years of age has a TFSA investment account, in which he contributes bi-weekly through a regular investment plan that totals his maximum contribution of $5,000 per year.  Timothy has contributed the maximum amount for each of the past four years totaling $20,000.  During this time, he has also earned interest totaling $900.  Timothy decides to withdraw the full $20,900 amount of his TFSA to renovate part of his home.  While Timothy cannot re-contribute the amount he withdrew this year, he can re-contribute the full $20,900 the following year, plus the additional contribution room he is allowed for 2013.

CIBC offers the following tips to maximize your TFSA savings:

Meet with an Advisor and Review your Savings Goals and Plan: Ensure that you are using your TFSA as part of your financial plan. Meet with an advisor to review your goals and establish a savings plan that aligns to your short and long term goals.  An advisor can also help to identify opportunities to build savings and structure a repayment plan that allows for debt reduction, both key elements of a savings strategy.

Contribute regularly: Making regular contributions to your TFSA is often easier than coming up with on lump sum for your annual TFSA contribution. An advisor can help you set up an automatic regular savings plan to coincide with your pay schedule so that saving is easy.

Manage and Track Day to Day Spending: Managing cash flow effectively is a key element in ensuring you have the funds to support regular savings. Keeping track of spending can be accomplished through simple pen and paper budgeting, or using new tools such as CIBC Mobile Banking to keep on top your account, or CIBC CreditSmart to stay on budget with your credit card spending.

KEY POLL FINDINGS

Percentage of Canadians that have a TFSA, by region:

Percentage of Canadians that have a TFSA, by demographic:

Among Canadians with a TFSA, percentage of those that have contributed to their TFSA in 2012, by demographic:

Among Canadians with a TFSA, percentage of those that have withdrawn money from their TFSA in 2012, by demographic:

Among Canadians with a TFSA, percentage that plan to use the savings for the following, by demographic:

*Each week, Harris/Decima interviews just over 1000 Canadians through teleVox, the company's national telephone omnibus survey. These data were gathered in a sample of 2,031 Canadians between July 5^th and 15^th, 2012. A sample of this size has a margin of error of +/-2.2%, 19 times out of 20.

CIBC is a leading North American financial institution with nearly 11 million personal banking and business clients. CIBC offers a full range of products and services through its comprehensive electronic banking network, branches and offices across Canada, and has offices in the United States and around the world. You can find other news releases and information about CIBC in our Press Centre on our corporate website at www.cibc.com. 

SOURCE: CIBC