While young Canadians are trying to save , many could be leaving money on the table by not investing in their

tax-free savings accounts (TFSAs), according to a just-released survey from Toronto-Dominion Bank . Although the majority (60 per cent) of generation Z and millennial Canadians have TFSAs, 41 per cent aren’t investing the money in these accounts, according to TD’s survey, which was published on Wednesday. This compares with 65 per cent of all respondents who have TFSAs, but a smaller proportion of whom (39 per cent) are not investing and benefiting from tax-fee growth.

“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,” said Pat Giles, vice-president, saving and investing journey at TD, in the report. “Even small, consistent investments can help Canadians maximize the full tax-free potential of their TFSAs.”

The survey found that a quarter of generation Z intend to invest within the next year, with 40 per cent reporting they opened a TFSA because it felt like a simple first step.

However, two in five of generation Z respondents said they don’t feel confident about when to use a TFSA compared with a

registered retirement savings plan (RRSP), and one in three weren’t sure they chose the right type of account to meet their financial goals.

Among younger Canadians who don’t have a TFSA, nearly three-quarters said their biggest barrier comes down to a lack of knowledge about the account — significantly higher than half of all respondents who reported the same. About 35 per cent of generation Z also aren’t sure where or how to begin, while a quarter said they have a limited understanding of the benefits of a TFSA and 16 per cent find said they find investing too complicated.

“A lot of younger Canadians have some confusion over the name: tax-free savings account,” said Diandra Camilleri, associate portfolio manager at Verecan Capital Management Inc. “They’re not really aware that you can invest in that account.”

Camilleri said it is important for financial professionals to

educate young people on how this type of investment account works and how it differs from traditional savings accounts.

With a TFSA, you can invest in a variety of different instruments, such as stocks, bonds, mutual funds, exchange-traded funds (ETFs) and guaranteed investment certificates (GICs), Camilleri said. These funds can grow tax-free over time (contributions are made with after-tax dollars) and be withdrawn without penalties. This offers greater flexibility compared with an RRSP, for example, which taxes withdrawals and doesn’t typically give back the contribution room after a withdrawal.

And unlike most traditional savings accounts, in which you can only increase your savings by earning interest, typically at a low rate, the returns can be much higher if you’re investing funds in an investment account such as a TFSA, Camilleri said. However, regular savings accounts have no annual contribution limit, whereas the 2025 contribution limit for a TFSA is $7,000.

Another major challenge that could be stopping younger Canadians from investing in their TFSAs is that they might not have enough money left over to contribute and invest after paying for their regular expenses, Camilleri said.

“The young Canadian has a lot of demands on their dollar,” she said. “They have student loans … they might be paying rent, and everyday expenses have eaten up a lot of the room that younger Canadians once had for saving.”

Some of her clients who opened an account such as a TFSA with the intention of contributing to it regularly suddenly found themselves facing large expenses, such as a major car repair, that forced them to put these contributions on hold, Camilleri said

“Saving a little bit every month, even if it’s $100, is better than nothing,” Camilleri said, adding that younger Canadians have the advantage of time to grow their wealth.

Among younger generations who are investing in their TFSAs, 30 per cent told the TD survey they invested their entire balance, while 40 per cent said they have less than $5,000 left in cash and 30 per cent have $5,000 or more left in cash.

Saving for travel or lifestyle experiences is a top goal for younger generations (at 38 per cent), while a third said they are saving for loan or debt repayments. About 31 per cent are saving for retirement, homeownership or a major purchase, such as a new car or renovations.

For those saving up for short-term goals, such as within six to 24 months, Camilleri said she doesn’t recommend they invest into the market, in order to ensure they have the cash available when they need it.

But for longer-term goals such as a future trip, a new car or even a down payment for a home, she would advise clients invest within a TFSA.

Short-term goals often call for lower risk options, such as GICs and savings accounts, while long-term goals can benefit from more growth through stocks, ETFs and mutual funds, said Sumaiya Bhula, senior manager and product group owner, servicing, saving and investing journey at TD, in an email.

Bhula recommended reviewing your investment plan regularly and speaking to a financial professional if needed.

“Life changes, and so should your investment strategy,” she said. “Review your TFSA at least once a year or whenever your goals shift. Make sure your mix still works for you and adjust if needed.”

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