Despite the fact that an estimated 16 million South Africans have cash in bank savings accounts, a staggering 40% of people have placed this money in low interest-bearing savings accounts, says Vera Nagtegaal, executive head at Hippo.co.za.
This is risky because over time, inflation eats away at the purchasing power of your savings.
Simply put, this means that the value of your money decreases over time. R500 in ten years from now may buy you the equivalent of R50 today.
Statistics South Africa placed inflation at 4.5% in March 2019. So, if you want to see "real growth" of your savings, the interest you earn must exceed inflation and bank fees.
Nagtegaal explains that, if the objective is to accumulate a smaller amount for a short-term goal, then a savings account is the way to go.
"The major benefit of having a savings account is typically a no-risk decision. You earn interest on the money you save; your initial capital is guaranteed and it's more easily accessible if and when you need it," says Nagtegaal.
"Most importantly, it is about choosing a savings account that will give you the most benefit."
A savings account offers easy accessibility to your money. For example, a notice deposit account protects your savings from impulsive withdrawals because you are required to provide notice of your intention to withdraw cash.
A fixed deposit account lets you choose the period of investment, offers a fixed interest rate for the full period of the investment, and also prevents you from making withdrawals on a whim.
"Using a savings account to grow your money and as a tool to keep track of your funds is a good starting point. But before you get to that stage, you need to put in the time to do some research and establish which account is best for you," says Nagtegaal.
"Consider how quickly you may need to access your savings in an emergency and whether you are going to make a once-off contribution or a recurring contribution."