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Bank fixed deposit rates compared

Absa’s ‘13%’ special offer has put these products back in the spotlight.
The fixed deposit space has become very competitive, with a number of banks launching special offers for longer periods. Picture: Moneyweb

Absa’s special offer of 13% interest on five-year fixed deposits has caught the attention of many investors looking to park cash somewhere. But, as detailed by Moneyweb last week, the 13% quoted is the return in simple terms, with the interest reinvested for the full term. In compound terms, the nominal interest rate is 10.05%.

Read: When 13% interest is not really 13%

This is not the first time a bank has quoted a high return in simple terms, nor will it be the last. Nedbank was called out in 2016 for offering the same interest rate – 13% – on its Green Savings Bonds.

Some banks, like African Bank, quote three different interest rates for fixed deposits: a monthly interest payout, an annual one, and the equivalent interest rate for payout on maturity.

The fixed deposit space has become very competitive, with a number of banks launching special offers for longer periods at present. It is increasingly likely that the Reserve Bank will increase interest rates from next year

On a 12-month basis, five banks quote rates in excess of 8%, with another offering a rate above 8% for pensioners only. For a 60-month (five-year) term, two banks – Absa and African Bank – quote double digit nominal (monthly) interest rates.

Nominal interest rate (monthly)

R100 001

 

12 months

60 months

Absa Fixed Deposit*

8.30%

10.05%

African Bank Fixed Deposit

8.56%

10.26%

Capitec Bank Fixed Deposit

7.65%

9.40%

FNB Fixed Deposit

7.30%

7.95%

FNB Fixed Deposit (over 55)

7.60%

8.40%

Grindrod Bank Fixed Deposit

8.23%

Investec LiquidFixed Deposit (0% access)

7.53%

8.10%

Investec Tax Free Fixed Deposit

8.30%

Mercantile Fixed Deposit

7.75%

9.25%

Mercantile Fixed Deposit (pensioners)

8.00%

Nedbank Electronic Fixed Deposit

7.40%

Nedbank Electronic OptimumPlus (over 55)

7.80%

Nedbank Fixed Deposit

7.30%

Nedbank Green Savings Bonds

8.15%

Nedbank Green Savings Bonds (over 60)

8.60%

Nedbank OptimumPlus (over 55)

7.70%

Sasfin Fixed Deposit

8.14%

Standard Bank Fixed Deposit**

7.45%

8.05%

* Limited special offer.

** For balances up to R99 999; includes 0.15% preferential rate for online account opening.

All rates correct as at October 15, 2018.

As Moneyweb journalist Patrick Cairns pointed out in 2015, nominal rates are “generally quoted if you intend taking the interest during the term. In other words if you want it paid to you monthly, quarterly or even annually. You will be given the effective rates if you intend to only take the interest on maturity.” Effective rates are not compounded.

Read: There are many variables to fixed deposits

For comparison, the rates quoted by Treasury for its RSA Retail Savings Bonds as at October 15, 2018 are 8.25% (fixed) for two years, 8.75% for three and 9.25% for five years.

Some large full-service banks, such as Nedbank and Standard Bank, quote a preferential interest rate for fixed deposit accounts opened and managed online (only). Pensioners also get preferential rates at most financial institutions.

Many banks don’t even offer a 60 month term for fixed deposits, steering investors to alternatives. Nedbank, for example, suggests customers look at its Green Savings Bonds for investments longer than 18 months.

What is clear from the above comparison is that there are a large number of options, and an equally large amount of fine print to wade through. As always when investing, one should consult a financial advisor for investment advice. A 60-month fixed deposit is very possibly not the ideal savings vehicle, and would be dependent on an investor’s specific circumstances.

Hilton Tarrant works at YFM. He can still be contacted at hilton@moneyweb.co.za.

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COMMENTS   21

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Well said: ‘there are a large number of options, and an equally large amount of fine print’

I think banks should be forced to only advertise nominal rates. Joa Soap has no idea how to compare the other rates.

Now if only i had a couple of shares in the Green that I could sell… 10% suddenly looks great.

Unfortunately savings accoubts only allow you to do exactly that and that is save. There is very little to no growth in real terms after inflation.

What is wrong with saving especially at 7/8%pa compared to the JSE??at 0% returns????? What growth did you have on JSE the past 3 years- 2%?
Plus NO costs or risk and first R23 000 odd interest TAX free. What is unfortunate.

This is the main reason for South Africans not saving, even if they could – the paltry interest. Better incentives/products and the Banks could drive the South Africans towards saving. Another reason for the South Africans not saving is that they’re penalised for saving by being TAXED by a corrupt Government. Better products by banks, no income tax and you’ll get the South Africans to safe – it’s logic 101.

why do you say 10% is a bad interest rate? It’s higher than inflation at 4% real yield, if used in your interest free allowance you pay no tax?
And it’s higher than JSE returns over the past 3 out of 4 years?

At the top of the table is an amount of “R100 001”. So I am assuming these interest rates are for amounts R100k and up. How many South Africans have R100k laying around to put into a savings account…?

For those over 60, when it comes to saving for anything longer than a year there really is only one place to invest – 5 year RSA Retail Savings Bonds with interest paid monthly.

The main benefit is that if yields rise then you are able to restart the bond at the new higher rate – this has huge value and essentially takes away the risk of putting the money away for 5 years. Who knows when inflation kicks in, but when it does yields will rise, and these bonds allow you the benefit of a fixed rate while rates are low, but also to reprice if/when yields rise.

Apart from this, other benefits are:

–There are no Fees
– You get the same rate whether investing R1000 or R5m
– If you need/want to get your money out, after a year you can redeem the bond. It does cost 1 months interest to redeem, but even after this cost your yield will be higher than if you invested for a year.

An investment in these bonds, managed so as to restart each time the rate offered is higher than the rate being earned, has beaten all bond/income/money market funds over the past 10 years

The rate on the 5 year bond is 9.25% monthly, which is higher than all the banks except ABSA. Anyone over 60 giving money to the banks for 5 years should really look at these as an alternative.

You forgot to mention that you may only “restart” the interest rate once over the life of the bond.

You forgot to mention that you may only “restart” the interest rate once over the life of the bond (and not every time the rate increases).

The way it works is that a restarted bond becomes a new bond (with principal = old bond’s book value at restart date), with the old bond effectively torn up. A restarted bond can then be restarted after a year again – hope that helps

African Bank new bank looks attractive and well capitalized from Reserve Bank 50% PIC 25% and the 5 banks 25%. New CEO and change in lending risk.

Comments welcome as I have funds to invest as part of my Retirement portfolio.

Wally

I have invested with Capitec at 9.4% paid monthly. Solid bank

Hi Joe

What are the tax implications on such an investment, which rate does it fall under, is it fixed or depends on the invested amount?

Maybe split your investments, Wally. Even with the “new bank”, I wouldn’t trust African Bank with 100 of my retirement savings. Maybe split between African Bank, ABSA, maybe the retail bonds someone else mentioned here? Spread your terms, if you like – some fixed for 5 years, some for 2 years? Take the interest monthly if you need it?

Keep in mind that this is not to be taken as investment advice. Just suggestions for options to consider, in conjunction with your financial advisor.

Thanks John for your comments. I am retired with a Pension, have a Living Annuity minimum draw down invested with Sasfin as well as Tax free Savings Account for my wife and I as well as cash investments split between both of us to benefit the R34500.00

We both have signed up with ABSA 5 year 10.05% taken monthly. Offer expires end of October.

We are not locked in with cash issues.

Wally

But the Interest exemption has been stuck at 23800 for the last 4 years. And it was 22800 for atleast 4 years before that. When will they increase it again, it is not being adjusted for inflation.

They stopped increasing the tax exempt amount when the Tax Free Savings Accounts started, the idea being that you transfer,or put new money into those up to the annual limit, currently R33000. It was stated at the time that the old exempt limits would not increase, and would probably be phased out.

My only problem with TFSA’s is that, as a young person, I would like to be able to save for life events: a large deposit on a house; car; wedding any unforeseen expenses etc. But withdrawing from a TFSA is basically a one shot move, reducing the ability to save in future. To me, that reduces its utility.

TFSA’s are usually invested in equities and other managed funds, which means huge fees, low growth since the inception of TFSAs and possible negative returns too.

What about Fedgroup’s 13% offer? And it’s compounded

It’s 13% after compounding.

You would have to ask yourself though, why Absa would be looking to “buy” deposits in the market. This is a bank whose mid year results were sluggish overall with rising costs, managed through staff cuts…..personally I would stay away from this one…this organization seems to have lost some really quality personnel, exited or marginalized, replaced by some really questionable ones ….

End of comments.

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