Piggybank With Eyeglasses And Calculator On Wooden Table, TFSA, RRSP

In a showdown between TFSAs and RRSPs, Canadians have a clear favourite: over half say they’d prefer to put their money in a TFSA, according to a report by Toronto-based Bank of Montreal (BMO). The problem is that almost one-third aren’t really sure what the difference is.

The report found that 32% of Canadians do not know the difference between TFSAs and RRSPs.

Millennials are the least likely to say they’ve invested in an RRSP, with the majority (56%) claiming not to have one. In contrast, two thirds of Generation X and Baby Boomers have an RRSP (67% of each group).

Mathieu Lepine, head of term investments at BMO, makes the point that Baby Boomers have been exemplary long-term savers, which could be why they’re now turning to TFSAs (69% would choose a TFSA over an RRSP this year). Many have built up their RRSPs and the TFSA’s flexibility can be a boon for those looking to make lifestyle upgrades or fund travel.

In general though, Canadians need better education and advice so that they don’t fall into any traps, he says.

“What will be important going forward for Canadian investors is seeking financial advice so that they don’t succumb to any of the downsides of either the TFSA or RRSP. Getting hit with tax penalties or being penalized for overcontributing can start to eat away at the amount invested,” Lepine says in a statement.