Make the most of tax-free savings
23 March 2015
Posted by: Author: Lisa Steyn
Author: Lisa Steyn (Mail and Guardian)
Finance houses have moved quickly to offer tax-free
products made possible by the minister.
institutions have scrambled to provide the most attractive tax-free savings, ranging
from simple bank deposits to investments exposed to the stock markets.
beginning of this month, the government introduced tax-free investment
regulations in a bid to boost household savings. Regardless of what form the
tax-exempt investment takes, the regulations allow for contributions of up to
R30 000 a year (an average of R2 500 a month) and no more than
R500 000 over a lifetime.
investors exceed the contribution limit, they will be subject to a 40 per cent
tax on the investment. Interest earned on the amounts is not considered as
contributions. Furthermore all interest earned on the investment will be exempt
from tax and any capital gain will be disregarded.
regulations require that new special products must be used to gain the tax-free
benefit. Existing accounts do not apply.
tax-free investment has a maturity date, the regulations require that it must
be paid up within 32 business days. If there is no maturity date, such as a
savings account, it must be paid on request within seven days.
savings products cannot be used like accounts, and so services such as debit
orders or ATM withdrawals are not allowed. Once a tax-free investment has been
opened, the funds in it cannot be transferred to another tax-free fund before
March 1 2016.
accounts are not necessarily exempt from fees although the regulation requires
that these "must be reasonable”.
of the funds offered by financial institutions stipulate minimum monthly
contributions, but the regulations say investors cannot be charged a fee for
not paying those amounts, paying less or ceasing payments.
big five banks, three have launched special products.
tax-free savings account requires a minimum R50 deposit and the account can attract
interest rates of up to 5.25 per cent. Partial withdrawals can be made if they
exceed R50 and a minimum of 24 hours’ notice must be provided. There are no
fees or commissions, but the bank reserves the right to charge a fee for cash
deposits exceeding R5 000 in any calendar month.
tax-free cash deposit account requires a minimum investment of R1 000.
Customers must give 32 days’ notice to make a withdrawal. In extreme
circumstances, the bank will consider shorter notice periods, but there will be
a charge. Interest can be up to 6.15 per cent, but it cannot be reinvested or
redirected to another account.
Bank has launched a tax-free call deposit account, which pays interest of up to
an effective 5.48 per cent and requires a minimum deposit of R250. The interest
can be reinvested monthly or paid to another account. Funds can be made
available within seven days but withdrawals and transfers between accounts
attract fees. Research by the bank shows that regular annual contributions of
R30 000 into this account will result in a gain of R319 000 by
year 17, assuming rates stay the same and, with the interest earned daily
and capitalised monthly, amounting to a total balance of about R819 000.
also offers a tax-free fixed deposit account with an attractive rate of 7 per
cent annually. But it requires a lump sum investment of R30 000 for 12
months for it to guarantee the fixed rate. The minimum withdrawal amount is
R5 000 and is subject to fees.
said it is working on a product that will benefit low-income earners in
particular, but noted that its current longer fixed-term saving products offer
a higher interest rate (up to 9.25 per cent) than what the rest of the market
offers on tax-free cash-on-call accounts, including their tax benefits.
said it is about to launch a tax-free savings product but would not provide
say long-term investors are likely to want exposure to shares in order to beat
inflation, and the tax-free investment legislation allows individuals to invest
in the stock exchange without paying the taxes normally associated with these,
such as dividends tax, which is 15 per cent. The same contribution limits apply
to these investments, and may be subject to brokerage fees and permissible
of these vehicles include Old Mutual’s tax-free plan, which allows customers to
invest in several funds, including those exposed to equities. It requires a
minimum monthly investment of R350, or R1 050 a quarter, R2 100
half-yearly or R4 200 a year. Investments can also have access to external
funds, such as Prudential or Coronation, but only if a financial adviser is
used. This attracts an advice fee. Withdrawals can be made at no charge and
funds will be paid out within seven days.
Securities offers a product in which you can select from listed securities,
with a minimum of R250 for each share a month. Left-over cash or dividends will
be kept in the account for reinvestment. The proceeds from selling shares will
be made available within five business days.
is a brokerage fee of 0.25 per cent and statutory charges can be as much as R98
a month, depending on the value of the investment. There is also a monthly fee
tax-free shares account allows existing customers to invest in the top 100
companies on the JSE and investments begin from R300 a month or a R1 000
once-off lump sum. These investments attract fees of 0.4 per cent (plus Value-Added
Tax) a year.
offers two options: a tax-free unit trust, which allows consumers to choose
investment funds, from R500 a month; and the Satrix tax-free unit trust, which
offers low-cost access to a lifetime investment option from R300 a month.
Satrix, the investment platform wholly owned by Sanlam, also provides tax-free
unit trust and exchange traded-fund options, to which the same minimum deposits
Muller, the head of growth market solutions at Sanlam, said some people would
use tax-free savings accounts more than others. "Like in the middle-income
market, it can be used for savings toward education. It is a better vehicle
than some of the endowments, although it is limited in how much you can
using tax-exempt accounts as a short-term investment did not take full
advantage of the tax benefit, Muller said. The real benefit would only occur
after the maximum contribution was paid, according to Sanlam’s calculations. If
the full R30 000 was paid consistently each year, this would take 16 years
and eight months. "The real additional savings only come if you are
invested after that,” she said, because of compound interest.
Wessels, a financial adviser at Martin Eksteen Jordaan Wessels, said, because
tax-free account contributions were limited, ideally they should not replace a
retirement annuity (RA), which is also tax exempt.
savings contributions are made from money that has already been taxed, but they
are exempt from tax thereafter. RA contributions are exempted from tax, but the
returns, when withdrawn, are taxed.
said retirement annuities had benefits a tax-free account didn’t. "The
real benefits of an RA are not always quantifiable. For example, it is
protected from creditors. This week, I had someone here who was insolvent but
still has his RA.” He said RAs were also exempt from Estate Duty and were less
liquid – you couldn’t cash them in until you were 55.
investments should become a mainstream investment vehicle, to replace ordinary
investments, especially for younger people. You can’t lose with this investment
… it’s a no-brainer.”
there was no single ideal option for every saver, he said. Ultimately the
vehicle chosen depended on the amount invested, the period and the goals of the
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