Tax-Free Savings Accounts (TFSAs) are often misunderstood. Despite the name, a TFSA is not simply a savings account — it is one of the most powerful tax-advantaged investment vehicles available to Canadians. The key benefit is not just saving money but growing it: any returns earned inside a TFSA, whether from interest, dividends, or capital gains, are completely tax-free. Yet research shows many Canadians still use their TFSAs primarily as cash accounts, unintentionally limiting the long-term growth potential the account was designed to deliver.
How much TFSA money sits in cash?
A 2024 survey from Bank of Montreal1 found that 53% of TFSA holders were primarily investing their contributions, while 47% were holding cash instead, potentially missing opportunities for tax-free growth. Earlier findings from BMO’s 20222 savings study showed cash was the most common TFSA asset. Approximately 56% of respondents reported holding cash in their TFSA, and nearly one-third said cash accounted for at least three-quarters of their holdings.
Similar results appear in other studies. An RBC survey conducted with Ipsos3 found savings accounts and cash were the most common TFSA holdings, used by 42% of account owners. This exceeded the use of mutual funds, individual stocks, exchange-traded funds (ETFs), bonds, and term deposits. More recently, a 2025 survey from TD Bank Group4 found that 39% of Canadians with TFSAs were using them primarily to hold cash, with younger investors especially likely to leave contributions uninvested.
Taken together, these studies consistently show that roughly 40% to 55% of TFSA holders maintain meaningful cash allocations, with some investors holding extremely high cash balances.
This over-emphasis on cash does not come as a surprise to Shane Dewling, an Investment Planning Advisor at CDSPI Advisory Service Inc. “I often speak with clients who’ve successfully opened and funded their TFSA, but then life gets busy and the investment decision gets postponed,” he notes. “Over time, that can leave a significant portion of the account sitting in cash and effectively collecting dust.”
Why Canadians hold so much cash in TFSAs
Several behavioural and practical factors help explain this trend.
Liquidity needs
Many investors value the ability to access TFSA funds quickly and without tax consequences. As a result, they often treat the account like a traditional savings vehicle rather than a long-term investment account like their Registered Retirement Savings Plans (RRSPs).
Knowledge gaps
Research indicates that many Canadians are unaware that TFSAs can hold a broad range of investments, including mutual funds, ETFs, stocks, bonds, and other securities. For some, the account’s name reinforces the perception that it is intended primarily for savings in the form of cash.
Investment uncertainty
Some investors are unsure which investments to select or how to balance TFSAs with other accounts such as RRSPs. This uncertainty often leads investors to hold cash while they delay investment decisions.
Shane believes that these factors can “create portfolios that are inefficient and far more conservative than necessary, particularly for investors with longer time horizons. Working with an advisor can help ensure those savings are properly invested and diversified, so you’re not unintentionally limiting your long-term growth potential by holding more cash than they actually need”.
How holding excess cash affects returns
From a financial planning perspective, holding large cash balances in a TFSA can have two major consequences: lower expected returns and inefficient use of the account’s tax-free benefits.
Lower expected long-term results
According to guidance from Fidelity Canada, cash-type holdings in TFSAs typically generate relatively modest interest returns. In contrast, diversified investment portfolios have historically provided higher long-term growth potential, although they come with market fluctuations5.
Because all investment returns earned inside a TFSA are tax-free, the account is particularly valuable for investments that would otherwise generate taxable income or gains. In general, the higher the tax that would normally apply to a type of return — whether interest, dividends, or capital gains — the greater the benefit of holding that investment inside a TFSA. When large portions of a TFSA remain in low-yield cash, investors may be using valuable contribution room to shelter minimal returns instead of allowing higher-growth investments to compound tax-free over time. Even modest differences in annual returns can add up significantly, as every dollar of growth inside a TFSA stays fully invested rather than being reduced by taxes.
Underutilizing the tax shelter
The TFSA is most valuable when it shelters investments that generate growth or taxable income and higher-growth or income-producing investments often benefit most from tax-free treatment. When TFSA contribution room is used primarily for low-yield cash, investors may miss the opportunity to maximize the account’s tax advantages. Unlike taxable accounts, there is no tax benefit gained from holding lower-risk, lower-return assets inside the TFSA.
Why younger Canadians often hold more cash
Younger Canadians appear particularly likely to maintain higher cash balances in their TFSAs. Surveys suggest this is driven by several structural factors.
Many younger investors prioritize financial flexibility. TD research4 found that over one-quarter of Gen Z and millennial respondents preferred to keep TFSA funds readily accessible. Others reported feeling they had not saved enough to begin investing or were unsure how to select appropriate investments.
There is also confusion about account selection. A significant portion of younger Canadians report uncertainty about when to use TFSAs versus RRSPs, which can lead them to delay investing decisions.
Economic pressures also play a role. Findings for Willful by the Angus Reid Institute6 show that many Canadians have relied on savings to cover living expenses in recent years. Younger households, often facing higher housing costs and income variability, may favour liquidity over long-term growth.
Making your TFSA work harder for you
For many investors, opening and contributing to a TFSA is an important financial milestone. But what happens after the contribution is made can be just as important as making it in the first place. It can be tempting to treat a TFSA like a simple savings account, especially when flexibility and quick access to funds feel reassuring.
While holding some cash for short-term needs can make sense, maintaining large cash balances over long periods limits the account’s true potential. Since TFSA growth is completely tax-free, the account is uniquely positioned to support long-term wealth building when contributions are thoughtfully invested and diversified.
Even small changes in how your TFSA assets are allocated can have a meaningful impact over time. A diversified investment approach can help balance accessibility with long-term growth, allowing savings to remain available while still benefiting from market opportunities.
Shane Dewling believes that “professional guidance can help ensure your TFSA contributions are fully working for you. A well-structured TFSA should reflect your broader financial goals, maintain appropriate liquidity, and support long-term growth through diversification.”
If you would like to better understand how your TFSA fits into your overall financial plan, speaking with an advisor can help you explore strategies designed to balance flexibility, cost efficiency, and long-term growth potential.
1 TFSA usage drops as Canadians cope with higher cost of living: BMO
2 BMO Savings Study: Cash is King in TFSAs
3 Canadians using TFSAs more for savings than investments: survey
4 Two-fifths of Canadians with TFSAs are sitting on cash: survey
5 Are you making this common TFSA mistake?
For general information purposes only. Not intended as professional advice. Please consult a qualified professional for advice specific to your situation.