Most Canadians prefer to tuck their money into a tax-free savings account over a registered retirement savings plan, but nearly one-third of respondents don’t know the difference between the two, a new survey reveals.

The BMO Financial Group poll released Thursday shows 32 per cent of Canadians don’t know what sets a TFSA, a savings account that allows Canadians to earn tax-free investment income, apart from an RRSP, a tax-deferred retirement savings vehicle in which contributions are tax deductible.

However, more than half of respondents overall said they would choose the TFSA over an RRSP, while 69 per cent of Canadians over 55 stating that the former is their preferred investment vehicle.

What's behind the growing popularity of TFSAs

Allan Small, senior investment advisor at Allan Small Financial Group, HollisWealth, discusses the growing popularity of tax-free savings accounts, and why more millennials seem to choosing a TSFA over an RRSP.

With the March 1 deadline for RRSP contributions approaching, the survey also revealed more than half (56 per cent) of young Canadians don’t have an RRSP account, while 67 per cent of baby boomers and generation X respondents do.

"It's a positive indicator to see Canadians flocking to TFSAs – the savings vehicle provides a good amount of flexibility,” said Mathieu Lepine, the head of term investments at BMO Financial Group, in a release.

“Leveraging both accounts simultaneously can provide even greater value over the long term,” he added. “As millennials start earning more and turn their minds towards retirement, RRSPs will nicely supplement what is being built up in the TFSA."

The BMO survey was conducted online by Pollara Strategic Insights between Nov. 30 and Dec. 5, 2018 among 1,518 Canadian adults. 

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