Contributions to TFSAs are made with after-tax dollars and the earnings in the plan are tax-free, so, while there is no deduction to be had at the time of deposit (as with RRSPs) neither is there tax to be paid on any withdrawals from the plan or on 'taking profits', even if the growth in the plan is substantial.

When we first started hearing of the government's intent to establish TFSAs, it was during a time of relatively high interest rates.  If held in a 'non-registered' or 'open' plan, 100% of interest income is subject to taxation at the individual's highest marginal tax rate.  Naturally, sheltering interest income was what caught the attention of most investors.  Couple that with declining equity markets and 'incentive rates' being offered by most deposit institutions, and it is no wonder that many of the TFSAs that were set up at the beginning of 2009 are invested in interest-bearing accounts.

But now, interest rates are at historically low levels -- and most of those incentives rates used to entice TFSA customers have dropped down to levels which are reflective of the current interest rate environment.  Daily interest accounts and GICs are offering so little return (in fact, less than the rate of inflation) that they are widely considered 'dead money.'  Stock and bond markets, on the other hand, have significantly outperformed deposit rates in 2009. (The average global balanced fund was up 14.8% YTD to the end of September according to Morningstar.)  At this point in the economic cycle, equity markets have more growth potential than cash, but many of the deposit-based TFSA accounts do not have a market-based option to switch to.

Understanding the economic cycle and having the capacity to adjust your TFSA to respond to current conditions can help you maximize the opportunity that these accounts present.  Though you can transfer your TFSA -- just as you can transfer RRSPs or RRIFs -- a perfect TFSA would allow you to take advantage of the economic cycle by easily moving from asset class to asset class within the same account -- equities to cash to GICs or bonds -- without the cumbesome procedure of transferring between institutions.  And there would be no trustee or redemption fees (as with self-directed RSPs) to reduce your gains. 

TFSAs can be a valuable component of your retirement income plan.  Unlike RRSPs, you do not have to first pay tax on the withdrawal before you get a dollar to spend.  When withdrawing from an RSP, you may need to withdraw $1.43 from your savings to net $1 -- and then, depending on your tax bracket and your province of residence, you may need to pay another 15 cents in tax on that withdrawal at tax filing time!  So, any savings plan which allows you to take out only $1.00 to get a dollar to spend, will help you preserve your assets and enjoy the highest level of lifestyle spending possible.