“I want them re-named - let's call them the TFIA, tax-free investment account, so that people don't think they're only savings accounts,” commented Prince George dual-licensed advisor Sarah Holland on Wealth Professional’s website Friday. “Who named them anyway – the banks?
Holland’s comments come fresh on the heels of our TFSA-related story Friday detailing the misinformation that exists when it comes to the retirement product that was introduced by the federal government in 2009.
See more: Advisors face a TFSA dilemma
One of the big problems, suggests Holland, is that many people take the name TFSA literally and treat it as a savings-related product where contributions are “invested” in high-interest savings accounts paying 2 percent or less.
“The number of people I meet with who really do think it’s just a savings account is really high,” says Holland. “It’s a surprise to me just how many people believe this – that it’s a high-interest savings account saving tax on a measly 1% a year, if that.”
Some experts suggest the TFSA is the perfect vehicle for an emergency fund because any withdrawals are tax-free to the client. But the idea of using a high-interest savings product in a TFSA specifically as a client’s emergency fund does not find favour with all advisors.
“The only time I’d use it for that [an emergency fund] is if a client has no other open money,” says Nova Scotia advisor Glen Rankin. “If it’s all they have and they still need an emergency fund, I’d rather have that fund with tax-free interest. But other than that, I think it’s a waste of time. You’re putting a Skoda engine in a Ferrari.”