TFSA: Why we shouldn't call them tax-free SAVINGS accounts!
In 2009, the federal government introduced tax-free savings accounts.
When they were first introduced, I don't think most people understood the power of these accounts and the incredible ability to compound money on a tax-free basis and to withdraw the money without triggering any tax.
Since 2009, tax-free savings accounts have been readily embraced by Canadian families as an important component to their financial planning and asset accumulation goals.
Unfortunately, there is an important misunderstanding about tax-free savings accounts that continues to linger.
This understanding, which is false, is perpetuated by the description of these accounts themselves. Embedded in the name is the term, "savings accounts."
It's the use of this term (savings account), that creates confusion, and unfortunately, this confusion leads to poor investment decisions made for these accounts and subpar long-term performance.
How do we fix this problem?
To start with, let's change the name. We should call these accounts – "tax-free investment accounts“
By taking out the term savings you realign your investment priorities when it comes to tax free savings accounts. You’ll start seeing these accounts as something more than a place to accumulate cash and savings. You'll also start to look at this vehicle as a long-term
When I meet with clients and prospective clients alike, I'm constantly astounded by the amount of money sitting in tax-free savings accounts invested in high-yield savings and variable-rate cash accounts.