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28 Feb 2017

BEST SAVINGS ACCOUNT

I am obviously not coming with only one best savings account option available for South Africans. We have quite a few options to choose from. One may have to look at their personal savings goals and the time they need to save for.
Before I even begin with the main issue, I thought it would be important to note the difference between saving and investing. Savings have lower earnings with the capital being safe from any risk. Investing on the other hand usually earns higher returns, with no guarantee of preserving even the capital invested. Lets go back to the best savings account options, shall we.
Best savings account South Africa
I was reminded of the need for this post last week when my bank called to find out if I didn’t make an error by putting money in a lower interest option instead of a notice account. I must also add that, even though the banker was correct, I am not a fan of bank savings. I use the bank for my emergency fund and extremely short term savings. Bank savings usually earn one extremely low interest. The following are just a few options that one can explore:

1. Saving by Paying Debt off
I have said it before, and am saying it again, paying debt off is probably the best saving option at one’s disposal. Most debt has unreasonable interest rates which eat into whatever interest a saver earns elsewhere. Debt like credit cards and other consumer debt often cost above 20% per annum in interest. It does not make much financial sense to pay above 20% in interest whilst earning way below 10% in savings. Something for one to think about.

2. Bank Savings Accounts
South African banks have various options for cash saving. These are given various fancy names, depending on the bank’s creativity. Do not get hung up on fancy titles.

  • Basic Savings Account
This usually earns the least interest rates of the lot. I am using a one day notice account instead of this kind of account as a result. See the next bank option below for what I am personally using. A typical savings account may earn around prime interest rate minus 6.5%.  This is extremely low. It is definitely lower than inflation, which means that your money is in real terms losing value.
The main advantage of this kind of savings is that your money is readily available at all times.

  • Notice Accounts
The notice accounts also differ from bank to bank. The most popular seems to be a 32 days’ notice account. This usually earns anything in the vicinity of prime interest rates minus 5.9% from R250 to prime minus 2.9% for any savings above R50,000. You will notice that, the higher the amount saved, the higher the interest earned. You are better off with an account balance of above R50,000.
I am using a one day notice account for my emergency fund which earns from prime interest rate minus 4.75% for R5,000 to R9,999 to prime interest rate minus3.5%  for any balance above R500,000.
There are various interest rate percentages earned in between R9,999 and R50,000. There are a number of bank savings options with a similar structure. I will repeat that, these and other bank accounts are typical low interest accounts which are ideal to keep savings for short periods of time or emergencies. An example will be a contingency/ emergency fund

  • Money Market Accounts
The money market account also offers the benefit of the cash being available at any moment one needs it. The difference between the money market account and the basic account is the minimum amount one needs to keep in their account and of course the interest to be earned. This is usually from R20,000 with low earnings of about prime interest rate minus 5.75% and slightly above that for higher available savings.
Some banks offer a higher interest for their professional bankers. Wealth does pay.

  • Fixed Term Deposit Accounts
The fixed term deposit accounts have their interest varying according to the term  the money is kept in the bank. This varies from 3 months to above a year. The implications are that you will not have any access to your cash until the term chosen lapses. The interest may go up to 1.25% below prime interest rate. This is not a bad rate for savings but the inconvenience of not having the access to the cash is the main disadvantage.

  • Easy Access Deposit Accounts
Easy access deposit accounts are similar to the fixed term deposit accounts.

  • Age and other Special Benefits
Most banks give a favourable treatment to citizens above 55 years of age. If you are in this category,  investigate the extra benefits on offer for pensioners.

3. Using the Homeloan and other Tools for Savings
Given the fact that homeloans are generally costing higher interest, using them as a savings tool is beneficial. The only way to ensure that one gets their cash when they need it is to ensure that they have an access bond in place. Some people use unconventional tools like credit cards for extremely short term savings.

The key is embarking on thorough research before one decides on the best savings account that meets their needs. We have dealt with investing throughout the blog. That is the obvious way to build wealth quicker. You will always need both for building and preserving wealth.

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Posts on Savings
Investing in Stocks/ Shares South Africa
Investing in Savings Bonds
Exchange Traded Funds (ETFs) 

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