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Banks’ tax-free cash account interest rates compared

Two banks beat all others hands down.
The highest rates offered are very favourable when compared with RSA Retail Savings Bonds. Image: Shutterstock

Savers who are making use of cash deposits for their tax-free savings will be well-rewarded if they shop around and compare the rates on offer from the various banks.

Of course, this kind of savings vehicle does not and will not suit every person, but there are those who, due to their life stage or specific circumstances, want (or need) to have a cash investment.

Since the launch of tax-free savings accounts (TFSAs) in 2015, banks have offered savings products within these tax-free wrappers. The annual contribution limit is currently R36 000 per year, with a total lifetime contribution limit of R500 000.

Some cash-based savings products in these wrappers are normal access accounts, some require notice, while others are fixed deposit accounts that typically run for a 12-month term, whereafter funds can be reinvested for a further 12 months.

Regulations require access of funds within 32 days when products have a term of maturity (in other words, fixed deposits). With some providers, an early withdrawal fee is payable if funds are required immediately.

The interest rates compared are the quoted nominal annual compounded monthly (NACM) as published. This translates to a slightly higher effective (annual) interest rate because of compounding.

Rates vary

Interest rates vary substantially between approximately 2% and over 5%, largely depending on balances. Higher interest rates generally require balances in excess of R100 000 which means the accounts will have had to be open for more than three years.

Two banks, Absa and Nedbank, offer both a fixed deposit account as well as a normal (access) savings account within the TFSA wrapper. In these instances, the fixed deposit interest rates are higher than those of the access accounts. This is logical given that banks have certainty that the former deposits are (mostly) ‘fixed’ and can therefore utilise this funding over a longer term.

Five banks – Absa, African Bank, Discovery Bank, Investec and Sasfin – pay a flat interest rate, regardless of balance.

Two of the five currently offer the highest interest rates in the market for cash-based tax-free wrappers: African Bank (5.85%) and Discovery Bank (5.15%). These rates are very favourable when compared with oft-recommended RSA Retail Savings Bonds. The two-year fixed rate of these products is currently 6.25%.

Both banks have been successful at attracting retail deposits (comprising not only tax-free savings) from their respective customer bases.

By February 24, Discovery Bank had a total of R6.3 billion in retail deposits from 298 000 clients.

African Bank had a retail deposit book of R6 billion as at end-September from 50 000 customers. Average account balances were R105 000.

Bank Account Interest rate (nominal/NACM)
Absa Tax-free fixed deposit 4.75%*
Absa Tax-free savings 2.5% to 4%, depending on balance**
African Bank Tax-free investment 5.85%
Capitec Tax-free savings account (12 months) 2.25% to 3.8%, depending on balance
Capitec Tax-free savings account (24 months) 2.25% to 5.23%, depending on balance
Discovery Bank Tax-free notice savings account 5.15%
FNB Tax-free cash deposit 3.25% to 3.9%, depending on balance
Investec Tax-free fixed deposit account 4.63%
Mercantile Bank (a division of Capitec Bank) Tax-exempt savings account 2.75% to 5%, depending on balance
Nedbank Tax-free savings account 2.5% to 4.5%, depending on balance***
Nedbank Tax-free fixed deposit 4.35% to 4.75%, depending on balance
Sasfin Tax-free savings 4.15%
Standard Bank Tax-free call investment account 2.8% to 3.5%, depending on balance

* Paid at maturity

** 0.5% for balances under R15 000

*** 1.75% for balances under R2 500 and 2.25% for balances between R2 500 and R24 999

All rates as at April 15, 2021.

A cunningly alternative way to put away that tax-free R36 000 – listen to this MoneywebNOW podcast with Simon Brown (or read the transcript here): 

COMMENTS   22

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The late Mathew Lester use to advocate for this all the time and I 100% agree (I have yet to see a good counter argument)

All interest earned in South Africa should be 100% TAX EXEMP!

In your dreams my friend.
This is just another oh so easy way to fund the never ending looting.

Its time that Crypto exchanges are allowed to offer TFSA.

Luno offers 7.6% on their USDC (Us dollar) account. No costs really no fixed terms and minimum amounts. Even beats retail savings bonds by the looks of it. AND ITS USD!!!!!

Time to put these big banks where they belong.

Have you read those T&C’s? you have no input on who they ultimately lend the Crypto too, but you carry all risk. They can change the borrowers when they like, but any default, and it is all you…

These things aren’t any issue, until they are.

Not much, if the inflation rate is 3.5% for example. Are any bank charges/fees taken into account?

These accounts only make sense once they have large balances. Since investments/contributions into them are limited to 36k, they are effectively long term savings vehicles. You also have a lifetime limit on payments into them. Meaning they should not be used to meet regular frequent expenses.
These are invest and hold vehicles. In that instance an investment strategy earning cash returns makes no sense. Rather find a suitable equity ETF.

Very interesting that Discovery’s average account balances are less than those of African Bank.

Investing your annual R36k tax free allowance into cash rather than equities is just ridiculous. One has a lifetime allowance of R500,000 and therefore – ignoring regular increases legislated in the annual allowance – one may assume that the investor will be investing for 14 years to get there.
Is it wise to believe that equities are going to under-perform money market over a timescale like that? And yes, full offshore equity exposure is allowed. Considering that zero tax is applied on DWT or CGT this is surely a no-brainer?

Agree-these alleged tax free accounts are not worth the trouble and do not make sense.Plus the idiotic bureaucratic regulations involved are typically ANC stupidity.

Tax Free Savings Accounts are very nice to have as part of a deceased estate because they provide immediate tax free liquidity for the heirs.

Better than having a funeral policy.

Not correct.Not available as cash like policy. The savings falls within the deceased estate as an asset and have to be distributed to the heirs only once the complicated and time consuming procedures to report and wind up estate etc has been complied with. Takes months. Policies pay out cash directly to a beneficiary.

Not ridiculous to put your tax-free money in cash, if you already have substantial investments in equities outside of the tax-free environment, including some offshore investments. Especially if you are already earning R23 800 worth of interest outside the tax-free account. Each individual is different. Depends on the amounts involved, and various other factors. No investment strategy is “ridiculous.”

I cannot believe people still keep their monies in these accounts

A Tax Free savings account will form part of your estate and will be subject to estate duty tax eventually

What happen to the money after the end of the period for fixed deposits say for instance at ABSA?

Is the money then re invested and is it then taken from your annual limit as well as your lifetime limit?

You can re-invest or transfer to another TFSA account with the same or another provider, as long as it is done via the official route, without affecting your limits. It just mustn’t leave the the tax-free space.

A couple of years ago Nedbank couldn’t handle this. I don’t know whether they got this sorted out.

“Trying to Retire” already commented in part on this – I’m not sure how the banks deal with their Tax Free Savings accounts, but I’m sure that Allan Gray isn’t the only company offering plans whereby you nominate Beneficiaries and these plans are pretty close to being an Endowment without all the restrictions and costs. Upon death your savings plan pays out directly to your nominated Beneficiaries and are NOT tied-up in your estate. I’m sure the funds will still be “Deemed Property” for Estate Duty purposes, but definitely not part of your Executable Estate. AND you can draw an ongoing tax-free income stream from the plan with Allan Gray should you choose to do so.

Makes more sense to invest @ 9.75% pa in African Bank fixed deposit over 5 years with interest paid out monthly than 5.85% tax-free.

The government also puts to much restriction on tax-free accounts.

Invest in African bank is like the lottery : good luck if you ever get yr investment back . Better under the mattress

African Bank has excellent products – v nice bank

The banks that pay the highest rates – need the deposits the most – beware!

End of comments.

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