Starting your savings journey is always tough, especially when you have no clue where a safe place would be to put your money. Once you’ve finally gotten to a point where you can save a bit of your salary each month, and then you decide to invest that money, then comes the dreaded worry of tax. So, how can South Africans take a step ahead if they’re still going to get taxed when they withdraw those funds? Luckily South Africa offers a range of tax-free savings accounts that can help individuals grow their wealth without the burden of taxation. These accounts allow you to save money without being taxed on the interest or gains you earn.
Before we get to the Top 10 tax-free savings accounts available in South Africa, let’s take a look at some of the jargon you’ll need to understand beforehand.
What is a tax-free savings account in South Africa?
A tax-free savings account (TFSA) is a financial product offered in South Africa that allows individuals to save money and earn returns on their investment without being subject to tax on the interest earned, capital gains, or dividends. The account has been introduced by the South African Government as a way to encourage individuals to save more and to help people to achieve their financial goals.
A TFSA has several features that distinguish it from other savings accounts. Firstly, contributions to a TFSA are made with after-tax income, which means that there is no tax deduction for the amount contributed. Secondly, the interest, dividends, and capital gains earned within a TFSA are not subject to tax. Lastly, withdrawals from a TFSA are tax-free and can be made at any time without any penalties.
There are limits to the amount that can be contributed to a TFSA each year. The maximum annual contribution is currently R36,000, and the maximum lifetime contribution is R500,000. Any contributions in excess of these limits are subject to penalties and tax.
What is the difference between a TFSA and a normal bank account?
One of the biggest differences is the speed and level of growth of your investment. A TFSA offers much better growth compared to a regular savings account. A regular savings account though is subject to tax based on the capital gains, interest and withdrawals from the account.
Top 10 tax-free savings accounts available in South Africa
1. Standard Bank Tax-Free Savings Account
Standard Bank offers customers two different types of tax-free options for investing money. The first is a tax-free investment account, where you’ll be able to start investing in the stock market via exchange-traded funds (ETF). With this type of account, you can start investing as little as R250. This account also has access to over 250 JSE shares and ETFs, where you’ll be able to buy and sell orders at any time. Your profits can either be paid straight into your account or used toward your next purchase. The second type of account is a tax-free investment account, with this you’ll need to make an opening deposit of R250, and will be able to contribute towards the account either monthly or in lump sums. Interest is calculated daily, where you could earn up to 3.5% interest on the money you’ve invested.
Minimum amount: R250
2. Absa Tax-Free Savings Account
Absa offers a number tax-free investment products under their umbrella. Each of the products are designed to suit different risk appetites, with different investment terms and goals for each. The one common thread between all of the products is that you are only able to invest R36 000 per tax year with a cut off of R500 000 in your lifetime. A tax-free fixed deposit account has a minimum once off opening deposit of R30 000, and a fixed term of 12 months. Another option is a tax free savings account, where you’ll only need to make an initial deposit of R1000, and the interest rates are tiered. Then there is a tax-free investment account with R5000 as the opening deposit required and you’ll be able to invest in unit trusts and ETFs. Then lastly you’ll have the option of a tax free ETF savings account, with a reduced brokerage of 0,2% with no minimum and no monthly fee.
Tax-free fixed deposit minimum amount: R30 000
Tax-free savings account minimum amount: R1000
Tax-free investment account minimum amount: R5000
3. Nedbank Tax-Free Savings Account
If you bank with Nedbank this is a no-brainer, it’s a simple set-up and provides a great opportunity to save money. As a customer, you can enjoy the proceeds without the stress of being taxed. The minimum opening deposit for this type of account is R500, and with that, you’ll be given competitive interest rates and you’ll be able to get paid out monthly or recapitalised into your account. You can make partial withdrawals by providing at least 24 hours’ notice, plus you won’t have to worry about any monthly fees or pesky commissions. A Nedbank Tax-Free Savings Account offers great interest, guaranteed capital and zero fees – this secure way to save is a clear choice.
Minimum amount: R500
4. Old Mutual Tax-Free Savings Account
According to Old Mutual, the best things in life are tax-free, and what better to start your savings journey than with a tax-free savings account? As with any savings account the longer you leave it, the more it grows. All you need to do is simply decide how much you can save, and how often. Once you’ve put this money away and it’s grown then when you’re ready you can access it, without paying any tax. Whether you’re saving towards a house, wedding or for retirement, this savings type can be suited to whatever your savings goals are. You can start by depositing as little as R250 as your initial deposit, and you can choose to contribute monthly or in lump sums.
Minimum amount: R250
5. African Bank Tax-Free Investment
In need of non-taxable payouts? You can start your savings journey with African Bank by investing your money at market leading rates without the worry of being taxed. African Bank prides themselves on having some of the best interest rates in South Africa, with interest starting at 8.5%. The best part is you don’t need to have saved a huge some of money to be able to open an African Bank Tax-Free Investment account, all you’ll need is R50 to open the account and from there are on you’ll need to contribute a minimum of R50 a month. Your interest rate will also remain the same for the full 12 months, thereafter if it increases you benefit from this increase. You will also have the option to withdraw funds during the anniversary month or every 12 months if you’d prefer.
Minimum amount: R50
6. Capitec Tax-Free Savings Account
Capitec is leading the charge when it comes to a simple and easy-to-set-up account. There is no minimum deposit required, you can open a tax-free savings account with as little as R1 as your balance. Interest rates start at 3.5% and go up to 8.84%, these rates are dependent on the amount of money you have in the tax-free savings account. A little saving can go a long way, and Capitec don’t want their customers to think they need a large sum of money in order to benefit from a tax-free investment. The only downside is that a fee of R300 is required every time you want to access your money (if anything this gives you an incentive to leave your money in for longer).
Minimum amount: R0
7. Ninety One TFSA
Ninety One TFSA offers South African investors the chance to grow their income and investments. The ideal part about investing with Ninety One is that their platform is very easy to use and navigate, with reports on each fund to help you better understand what you are investing your money into. Also if you’ve reached your tax-free savings limit for the year, you can contribute towards one of their other funds like a unit trust or retirement annuity. With a Ninety One TFSA you’ll be able to invest as little as R500 monthly or even as a lump sum payment. Another aspect of TFSA that South Africans aren’t aware of is that you can invest money on behalf of your minor child. As with any investment, the longer you leave it in your tax-free investment account the better.
Minimum amount: R500
8. Allan Gray Tax-Free Investment
If you’re keen on investing for the long term, and don’t want to have to pay capital gains tax, then opening a tax-free investment account where you can invest in unit trusts is a great option. Allan Gray has also made it super easy for customers to transfer their existing tax-free investments from other financial service providers to one of their investment accounts. The minimum transfer amount for a tax-free investment with Allan Gray is R1000. There is also the added benefit of investment expertise, where Allan Gray focused on building long-term wealth for its customers. When choosing a unit trust, you need to decide what level of risk you are willing to take.
Minimum amount: R1000
9. Coronation Tax-Free Investment
Before opening a tax-free investment account with Coronation, you need to decide what unit trust funds are best suited to your financial needs right now. The two growth-orientated funds are, Market Plus which has a South African share selection bias, and then Global Optimum Growth Feeder which is more focused on opportunities in international markets. There are no initial admin fees when setting up a Coronation Tax-Free Investment, although there is an annual management fee depending on the fund that you choose. You are also free to access your money whenever you’d like to withdraw from it, however you cannot replace the money you withdraw in that year. You can invest as little as R250 a month into your tax-free investment account.
Minimum amount: R250
10. Easy Equities Tax-Free Savings Account
When you sign up for Easy Equities, you automatically get access to a tax-free savings account on the platform. An Easy Equities TFSA can be used to invest in Exchange Traded Funds (ETFs), Baskets or Bundles with up to R36 000 a year. You’ll be able to browse from a list of ETFs or selected Bundles or Baskets, and then can pick and choose what is best suited to your financial needs. The monthly account cost is free, and there is no minimum brokerage.
Minimum amount: no minimum deposit required
Now that you’re fully in the know about tax-free savings accounts in South Africa, you’ll know that this account type provides an excellent opportunity to grow your wealth without the burden of taxation. By selecting the right account for your needs, you can enjoy competitive interest rates, flexibility, and the satisfaction of knowing your money is working for you tax-free.
Frequently asked questions about tax-free savings account
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How do I open a tax-free savings account in South Africa?
Most financial institutions and banks offer tax-free savings accounts under their umbrella. The steps are pretty simple to set one up. To open a tax-free savings account (TFSA) in South Africa, you can follow these steps:
- Choose a financial institution: Select a financial institution that offers tax-free savings accounts. Some popular providers in South Africa include banks like FNB, Nedbank, Standard Bank, and ABSA, as well as investment platforms like EasyEquities and Allan Gray.
- Check eligibility requirements: Make sure you meet the eligibility requirements for opening a TFSA. In South Africa, individuals aged 18 years and older with a valid South African ID or passport can open a TFSA.
- Gather required documents: Gather the necessary documents required to open a TFSA, which may include your South African ID or passport, proof of address, and tax number.
- Apply for a TFSA: Apply for a TFSA at your chosen financial institution by completing the application form and submitting the required documents. Some institutions may also allow you to open a TFSA online.
- Choose your investment options: Once your TFSA is opened, choose your investment options. You can choose from a range of investment products, including unit trusts, exchange-traded funds (ETFs), and fixed deposit accounts.
- Make contributions: Make contributions to your TFSA up to the annual limit set by the South African Revenue Service (SARS). The current annual limit for TFSA contributions is R36,000.
- Enjoy tax-free returns: Any investment returns earned in your TFSA are tax-free, which means you can keep more of your money.
What is the penalty if I pay too much into my tax-free savings account?
This needs to be avoided at all costs as the tax percentage/penalty is very high. According to SARS, there will be a penalty of 40% on the excess amount above R36 000.
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