As interest rates increase, one’s attention usually turns to what that means in terms of debt owing, but what we forget is that higher interest rates are favourable for those who are saving, who for a long period have received less interest on their cash deposits.
Since 2009, interest rates have halved, reducing income for those who invest in cash.
As a saver, you pay no tax on the first R23 800 of interest if you are younger than 65, which means you could invest R330 000 at 7% and pay no tax on the interest.
Individuals older than 65 do not pay tax on the first R34 500 in interest, or nearly R500 000 at 7%.
If you are sitting with cash savings in your bank, it is worth finding out whether you are earning the best rate possible for your money.
Generally, your current account would have the worst interest rate. Banks offer a range of investment products, depending on the size and length of your investment. But even within those investment options, you could further maximise your return.
We take a look at which products to consider, depending on who you bank with.
If you have R5 000 and want easy access to your money, then transfer to a JustInvest money market account, which is paying 5.5% on balances between R5 000 and R9 999, and 6% on balances between R10 000 and R19 999. If you have R50 000 or more, opt for Money Trader, which also provides immediate access but pays 7% on R50 000 compared with 6.6% on money invested in JustInvest.
If you are prepared to take up a 32-day-notice account, you can earn up to 7.35% on your R50 000.
Fixed-deposit rates: These rates are paid for deposits of R1 000 or more, making it one of the better options for lower balances.
If you have R15 000 in an Absa account and want easy access, invest in the Depositer Plus, which starts at R15 000 and offers 5.7% interest a year. The rate increases along with the balance. For example, on R75 000 you would earn 6.55%.
Fixed-deposit rates: Absa also offers fixed-deposit rates on R1 000 or more. However, if you have between R10 000 and R100 000, the Prime Linked Account would be your best option as it is linked to the rate increases, along with interest rates.
Money on Call pays 5.4% from the first R5 000, but if you have R100 000 to invest, your best option is the Money Maximiser account, which provides immediate access at 7% compared with Money on Call, which pays 5.4% on R100 000. The 32-day Flexi Notice account also pays a rate of 7% for R100 000, but you would not have immediate access.
Fixed-deposit rates: These rates are for balances between R10 000 and R249 999.
Capitec has the best rate for a current account, paying 5.35% on your funds in your transactional account. If you want to keep your savings separate from your day-to-day spending money, its flexible savings account offers the same rate (5.35%) for balances under R25 000, and 5.65% for balances between R25 000 and R99 999. If you have R10 000 or more and don’t need immediate access, consider the fixed-deposit options.