ING DIRECT survey finds half of Canadians yet to embrace TFSAs, more education required to unlock long-term potential

High percentage of Canadians use TFSAs as emergency funds or short-term investing, missing significant savings opportunities

TORONTO, Jan. 5 /CNW/ - As a chorus of experts from economists to financial pundits encourage Canadians to become better savers in 2011, a survey by ING DIRECT finds slightly more than half of Canadians have yet to take advantage of Tax-Free Savings Accounts (TFSAs). While only 8% of those polled found TFSAs more complicated than RRSPs, Canadians seem to still be grappling with how best to benefit from the program.

According to a recent Angus Reid Public Opinion poll commissioned by ING DIRECT, 87% of Canadians who opened a TFSA since the program was launched in 2009 used it for an emergency fund or left it in a short-term investment such a savings account.

"The finding is not surprising, as the flexibility of the TFSA as a liquid investment vehicle sets it apart from an RRSP. There is no tax implication when you withdraw funds and you don't lose your contribution room over the long-term," says Peter Aceto, President & CEO of ING DIRECT Canada. "But that's also led to confusion, meaning many Canadians are not tapping the true strength of TFSAs to shield a wide range of investments from taxation as part of a longer-term retirement strategy."

Aceto says the financial industry has to do a better job educating savers. In 2011, contribution limits will rise to $15,000 meaning TFSAs can play a larger role in investment portfolios. But the survey found 47% of respondents unsure of which investments they would use inside their TFSAs, and only 13% considering products such as mutual funds that have the potential to generate higher returns.

"First off, all people should take the most important step of simply opening a TFSA account, as only a third of eligible Canadians have one," says Aceto. "But they should also do their homework as many institutions charge fees if TFSA funds are moved to another institution — this can wipe out any interest gains and often deters people from moving TFSA funds from one institution to another where they could receive considerably better returns."

As long as you use them properly, and don't incur fees for moving your funds, Aceto says TFSAs can also be a good way to save for shorter-term goals. In the survey, about 20% of savers had made TFSA withdrawals. Of those only 14% of Canadians have used a TFSA for savings towards a goal, with home renovation (60%) being most popular followed by purchasing a vehicle (15%).

At ING DIRECT, the Tax-Free Investment Savings Account is currently paying 2% interest (as of December 30th, 2010), which is calculated daily and paid monthly. With no fees, no service charges and no tax on the interest earned, savers will realize the true flexibility of the TFSA if they want to move their money into longer term, higher growth potential investment products such ING DIRECT's family of Streetwise Funds®, as their contribution room continues to grow.

And as the TFSA program matures, different segments of savers are catching on. Retirees who don't generate earned income and can no longer make RRSP contributions see TFSAs as a good alternative for sheltering capital gains. Younger people as well as those with lower incomes who don't capitalize on the biggest advantages of RRSPs are finding TFSAs a great tool for sheltering money from tax while benefiting from the power of compounding interest over time.

ING DIRECT, a pioneer in educating Canadians about the benefits of TFSAs, answers thousands of questions each year in its call centres and through email. For an extensive list of FAQs visit http://www.ingdirect.ca/en/aboutus/faq/index.html.

Survey Methodology
From September 29 to September 30, 2010, Angus Reid Public Opinion conducted an online survey among 1,009 randomly selected Canadian adults who are Angus Reid Forum panelists. The margin of error—which measures sampling variability—is +/- 3.1%, 19 times out of 20. The results have been statistically weighted according to the most current education, age, gender and region Census data to ensure a sample representative of the entire adult population of Canada. Discrepancies in or between totals are due to rounding.

About ING DIRECT
ING DIRECT is Canada's leading DIRECT bank with over 1.7 million Clients and more than $29 billion in total assets. ING DIRECT gives the power of saving to all Canadians by offering high-value, simple products such as high interest savings accounts with no fees or service charges, and low rates on mortgages. Low cost, index based mutual funds are sold through ING DIRECT Funds Limited. ING DIRECT has been operating in Canada since 1997, and paid more than $4.5 billion in interest to Clients. ING DIRECT is open for banking 24 hours a day, 7 days a week, at ingdirect.ca, on mobile devices at m.ingdirect.ca or by calling 1-800 ING DIRECT (1-800-464-3473)

Follow Peter Aceto on Twitter at: Twitter.com/CEO_INGDIRECT
And find ING DIRECT at: Facebook.com/SuperStarSaver; Twitter.com/SuperStarSaver; YouTube.com/SuperStarSaver

SOURCE ING DIRECT

For further information:

Lisa Naccarato, ING DIRECT
416-758-5072
lnaccarato@ingdirect.ca

Magda Jarota, MAVERICK
416-640-5525 x244
magdaj@maverickpr.com

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