TFSA Investment Gap: 40% of Canadians, Especially Gen Z, Holding Cash

A recent survey by TD Bank reveals that while Canadians are adopting the Tax-Free Savings Account (TFSA), many are not leveraging its full investment potential, particularly among younger generations.

The survey found that nearly two-thirds (65%) of Canadians currently hold a TFSA. However, a significant portion—39%—are utilizing the registered account merely to hold cash, rather than investing those funds within the account wrapper.

Younger Generations Hesitate to Invest

The trend of holding cash is slightly more pronounced among younger demographics:

• Gen Z and Millennials: 41% of respondents in these groups admitted they had not yet invested the funds within their TFSAs.

• Reasons for Holding Cash: Of those who held cash, the top reasons cited were:

  • Wanting the money to be readily accessible (27%).

  • Feeling they had not saved enough to begin investing (22%).

  • Lack of knowledge regarding which products to invest in (22%).

Pat Giles, vice-president of saving and investing journey at TD, cautioned against this practice in a statement: “Simply parking cash in a TFSA limits its potential and, in some cases, could lead to contribution penalties if used like a regular savings account.”

Confidence Gaps and Knowledge Barriers

Despite Gen Z being more likely to open a TFSA as they view it as a simple entry point to investing (40%, compared to 30% of older age groups), many lack confidence in executing their financial strategy:

• Account Confusion: 40% of Gen Z respondents reported they did not feel confident about when to use a TFSA versus a Registered Retirement Savings Plan (RRSP).

• Goal Uncertainty: 32% of this group were unsure if they had chosen the correct account type to meet their long-term financial objectives.

Knowledge gaps represent the largest barrier to entry for those without a TFSA. Among Gen Z Canadians who do not have the account, 74% cited a lack of knowledge about the account as the biggest hurdle—a figure significantly higher than the national average of 52%. Furthermore, 25% reported having only a limited understanding of the account’s benefits.

The survey was conducted by Léger from October 24 to 27, utilizing a nationally representative sample of 1,500 Canadian adults.