Accounts under the Spotlight

VANESHA PALANI, Divisional Executive of Transactional Banking, Forex and Investments at Nedbank, celebrates all the people who are saving and asks, ‘Are you saving enough?’

“When money is put aside regularly, saving and investing in various products, it grows over time. This is dependent on your risk appetite, as there is always the risk of losing money.

“The earlier you start saving, and the longer the money is invested, the more the funds will grow.

“At Nedbank we understand and care about our clients, that is why we have a bouquet of savings options that can be tailor made for the individual, enduring that clients derive maximum benefit from savings.

“Our products are made for the person starting off their savings journey, as well as the seasoned investor.

“Our offerings come with great interest rates, no monthly fees or commission, capital guarantee, access to funds, and more importantly, we contribute to a causes that are close to the heart of clients, at no cost to our clients,” says Palani.

A key message from Nedbank to clients is that it is important to beat inflation to achieve a real return that is to achieve true capital growth.

With money invested early you can earn interest on interest. When interest is reinvested over time, you benefit from compounding.

Explained simply, compounding means that the interest you earn starts to earn its own interest, often surpassing the initial investment amount.

This is the point where through the efforts of Nedbank and the client’s willingness to save, you start creating wealth.

“It is important to note that the longer you let interest accumulate and compound, the more wealth you create. Albert Einstein, one of the modern era's greatest minds, is often quoted as having said, ‘Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.’

“The time value of money is a money law that assumes that money is worth more today than it will be in future, but that, if invested wisely, it can grow.

“This is the main principle of finance and banking – money needs time to grow when invested wisely. A simple example is that, if you were to put away R1 000 every month from today, you could do a lot with it in terms of investing.

“Even if you were to put it in a 32-day notice deposit, the money would be worth more than R1 000 five years from now.”

In 1985 a loaf of bread was R1, in 2005 it was R5 and in 2016 the same loaf of bread is close to R10. This is the result of inflation. For example, with inflation at 6 per cent, it means that R1 this year will be worth around 94 cents next year.

This means that you must invest and save at least at 6 per cent to retain the value of your money.

If you are 25 years old, it is, however, advisable that you save a minimum of 15 per cent of your monthly net income at a minimum average return of 15 per cent to meet a 75 per cent income replacement of your final income.

“When investing and saving, most people just look at how much they will have at the end without considering how much this money will be worth in the future in real terms.

“So large amounts promised in the future need to be compared with today's money value to see true value from the growth,” says Palani.

Without going into the details of the Present value (PV) formula, you can calculate the present value of a future amount. The formula is:

PV = FV/(1+r)n. [PV is the present value, FV is future value, r is the interest rate (expressed as a decimal, so 0,10 is 10%) n is compounding frequency.]

“This will give you an idea of the value of money over time. This is best illustrated by looking at the present value of R100 000 and R1 million looking at future periods.

“Palani says that this a useful formula to look at in the initial planning stage, but she urges that one must sit with a financial planner to ensure the desired outcome.

R100,000 in today’s money compounded at 10 per cent interest is worth R62,092 in five years, R38,554 in 10 years, R23,939 in 15 years ago and just R14,864 in 20 years.

For R1 million in today’s money compounded at 10 per cent interest, it is worth R620,921 in five years, R385,543 in 10 years, R239,392 in 15 years and R148,643 in 20 years.

“The PV tells us how much a future lump sum is worth today. The illustration shows that, in five years from now, R100 000 will be worth R62,092 in today’s money, and in 10 years it will be worth R38,554.

“In 15 years from now the same amount will be worth R23,939 and in 20 years it will be worth R14 864. The same has been done for R1 million.

“The purpose of this exercise is to remind us that when an adviser promises you a large amount in the future, you should ask how much it will be worth today.

“So, if you want to have R1 million in today’s value, you actually have to target a higher value. Most people think of an amount they want to save in present value, but do not consider how much that amount will be worth in future.”

“What this means is make sure you have the right banking partner who will guide you to choose the right savings and investment products.

“Nedbank advisors have the interest of our clients at heart and want to see people save and become part of a new movement that makes the sacrifice to create wealth through savings.

“Our offerings are tailored to ensure that through savings, clients can step up the journey towards prosperity.

“It is with this in mind that Nedbank continues to promote a savings culture and offers affordable means of saving.

“As a bank we believe that savings can be derived through various means, however, our advisors can steer clients in the right direction, ensuring that they benefit from the best rates, no monthly fees or commission, guaranteed capital, easy access to funds in an emergency, and knowing that at Nedbank we strive to go the extra mile and obtain the best results for clients,” says Palani.

She offers some savings and investment options available from Nedbank:

The newly launched MyPocket is linked to a transactional pay as you use account (or any other transactional account) and allows you easily to move funds into a savings pocket, where you can access it in future, without having to give notice.

MyPocket is the perfect way to save for everything your heart desires, and you can link up to 10 different MyPockets to your transactional account.

You can name each pocket too, so you can have a ‘holiday’ pocket, a ‘back to school’ pocket or even an ‘anniversary dinner’ pocket.

“This is a free offering, but it is important to note that you can only transact with your transactional pay-asyou-use account and not the MyPocket,” says Palani.

Save4me offers kids and teens aged between 0 and 18 years a secure, attractive method of saving funds at interest rates above the average savings account rates.

With Save4me you can access your funds after you gave 24 hours' notice. There are no fees or commissions payable, except for certain cash deposit fees.

“In addition, if you set up a free stop order on your Save4me account (or any Nedbank transactional account), Nedbank will pay you a monthly bonus of R2 for each stop order.

“In the case of weekly stop orders the bonus of R2 will be paid after every fourth successful stop order.”

“Nedbank MoneyTrader is a money market investment account that offers you competitive interest rates with a minimum deposit of R50 000.

“A 24-hour notice period is required to access you money, and no transactional facilities are available. MoneyTrader is the ideal investment account to deposit your funds into after the sale of units, shares or property while you consider your investment options,” says Palani.

“Nedbank JustInvest is a money market investment account that offers you competitive interest rates. You have to give 24 hours' notice to access your funds and no transactional facilities are available.

“JustInvest is the ideal investment account to deposit your funds into after the sale of units, shares and property, while you consider your investment options.

“JustInvest can also be used as an effective means to build up funds for your child's education or that dream holiday.

“JustSave offers you a secure, attractive method of saving funds at interest rates above average savings account rates, while you have immediate access to your funds.

“In addition, if you set up a free stop order on your JustSave Account (or any Nedbank transactional account), Nedbank will pay you a monthly bonus of R2 for each stop order. In the case of weekly stop orders the bonus of R2 will be paid after every fourth successful stop order.

“The Nedbank 32 Day Notice Deposit offers you a secure, attractive method of saving funds. You earn interest above the rates earned on the average 32-day notice deposit.

“This offer is available to individuals as well as Small Business Services and Business Banking clients.”

It boasts the following features and benefits:

You can open an account with a minimum deposit of R250.

You can make additional deposits (minimum of R100).

You have to give 32 days’ notice to make withdrawals (minimum withdrawals of R100).

Interest rates are tiered, so the higher your balance, the more interest you earn.

“Nedbank StepUp is a threeyear deposit that offers a competitive base rate, with guaranteed quarterly increments in the interest rate.

“In addition, the interest rate is directly linked to the prevailing prime rate, which means you will benefit immediately when interest rates are increased.

“As an added bonus you can withdraw your full funds each quarter, without penalties charged or questions asked. The minimum deposit to open a StepUp Deposit is R1 000.

“EasyAccess is a fixed-term deposit account of three to 18 months with built-in liquidity – 50 per cent of the original capital is fixed for the duration of the product, while the remaining 50 per cent (50 per cent or two withdrawals, whichever comes first) is available with a minimum of 24 hours’ notice.

“The minimum deposit to open an EasyAccess Deposit is R2 000, and a maximum of two withdrawals are allowed with no questions asked and no penalties charged. Withdrawals must be a minimum of R1 000 each.

“The Nedbank Green Savings Bond long term investment enables South Africans to save while contributing towards a greener future.

“The capital raised from this innovative bond will be earmarked for investment into various renewable-energy projects, such as wind farms and solar fields throughout South Africa, at no risk to the investor.

“The Nedbank Green Savings Bond gives you peace of mind by offering good interest rates, guaranteed returns and capital security, while no monthly fees or commissions are charged.

“Plus you have the option to invest for 18, 24, 36 or 60 months from as little as R1 000. Clients aged 60 years and older enjoy preferential rates,” says Palani.

For more information go to nedbank.co.za or visit your nearest Nedbank to talk to a financial planner.