The TFSA might be the best investment account in the world. A lot of Canadians are using it wrong.

The Tax Free Savings Account allows Canadians, as soon as they turn 18 years old, to invest thousands of dollars a year to grow – as the name implies – tax free. In 2026, the contribution limit was $7,000.

And yet, research shows Canadians are not using the account to its full potential. A 2024 study found 47% of Canadians had their savings in a TFSA, in cash.

The TFSA is built to protect decades of tax-free investment growth in high-returning assets like stocks or bonds. According to Canada Revenue Agency, Canadians collectively had $745 billion in their TFSAs in 2024. If nearly half of that is being held in cash, that’s around $350 billion in hard earned savings generating little (if any) returns.

Why are so many Canadians using the TFSA incorrectly? Wealthsimple recently surveyed over 2,000 Canadians with Abacus Data to understand why. It appears, many don’t understand what the account was designed to do.

Only a third of Canadians know a TFSA can hold stocks

When respondents were asked what they could legally hold in a TFSA, only 30% identified stocks as an option. Just 25% said ETFs. By contrast, 45% chose cash, and 11% incorrectly said a TFSA can only hold cash.

A lack of awareness is one reason so few Canadians hold investments in their TFSAs: more than a third of respondents weren’t sure what assets could be held in a TFSA, slightly more than those who knew they could hold stocks.

Only 26% of respondents said a TFSA was mainly for investments

The survey found most Canadians to be unaware of how best to use their TFSAs. Nationwide, only 26% of respondents said a TFSA was mainly for investments. Another 34% said they should be used for cash and investments in equal measure, and 21% believed a TFSA was mainly for cash. Young Canadians (18-29) were most likely to know a TFSA was for investing (33%), versus only 25% of GenX.

TFSA understanding was varied across the country The Western provinces — particularly Manitoba and Saskatchewan — had the highest rate of respondents who knew TFSAs were a place for long-term investments. Quebeckers, meanwhile, were half as likely as their western neighbours to say the same.

Investing with a TFSA over the last decade would have double its value

In the last decade, inflation largely erased any interest earned on cash deposits, while stock market returns have soared — even after accounting for market declines. The chart below compares the value of one TFSA held entirely in a diversified growth portfolio, and another TFSA holding cash alone, over the last decade. It assumes both TFSA holders maxed out their annual contributions.

The TFSA holding cash alone would only earn around $68,000, almost all of it through contributions rather than interest. In some years, particularly 2021 and 2022, inflation completely eroded any gains. The diversified growth portfolio earned nearly twice as much over the same time period — and all capital gains would be tax-free.

What’s in a name? Tens of thousands of dollars.

One way to help Canadians unlock the true power of the TFSA is to change its name to what it actually does. Tax Free Savings Account implies it’s a place to set money aside rather than put it to work. Instead, it should be renamed the Tax Free Investment Account. Changing one word in the TFSA’s name could help nudge millions of Canadians into using it the way it was designed and build a more secure financial future for themselves.