Johannesburg - When people begin to save, the most likely place they’ll think of stashing their money is in the bank.
Most of the money saved by individuals in South Africa is in bank accounts – at the end of the last quarter of 2012, South Africans had a total of R811m in savings, which, when you consider that there are about 52 million of us, doesn’t amount to all that much.
Bank savings accounts are not a great choice in terms of the returns they offer, but they make a good starting point for people who are just setting out on the savings road.
Bank investments are safe: in South Africa, we have a well-regulated banking industry and it’s really unlikely you will lose money invested with a bank.
These accounts are also an option for people who have most of their savings tied up in an investment for several years – many people like to keep a certain percentage of their savings in a bank account where it earns some interest, but they can get access to it, in case of emergencies.
There are three different types of savings account to consider:
As the name implies, your money is ‘on call’ in these accounts. You can access your money readily, by giving the bank notice (usually the bank will require 24 hours’ notice).
This process can be as simple as picking up a phone and making a call to the bank, or even doing the procedure yourself online.
Interest rates are not impressive, sometimes as low as just over 2%, and they track the fluctuations in the prime interest rate. Most banks offer some kind of call account.
There may be a minimum amount required to open a call account.
Notice deposits are investments made for indefinite periods; but you cannot get access to your funds until a specified ‘notice period’ has been served.
The range of notice periods available is enormous: some banks have a 21-day period, a 32-day period is common, but other products have a 61-day period or even longer.
The longer the notice period, usually, the higher the interest rate offered. (Interest rates tend to be a bit more favourable than for call accounts.)
You’ll need a minimum amount to invest which varies from bank to bank, and most banks offer tiered interest rates – the more you invest or keep in the account, the higher the rate.
Fixed deposits tie up the investor’s money for a term specified in advance: this term may be anything from one month to five years.
The traditional fixed deposit offered a fixed interest rate over the agreed term, which gave the investor certainty about what he or she would earn.
Today, many banks offer ‘linked deposits’: there’s a guaranteed minimum interest rate, but if interest rates increase above that during the term, so does the interest paid to the investor.
You can earn quite reasonable rates of interest on fixed deposits – a recent comparison across banks showed a range from 4.62% to 5.85%.
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