SPECIAL MENTION: BEST TAX-FREE SAVINGS ACCOUNTS

TAX-FREE SAVINGS ACCOUNTS

TAX-FREE SAVINGS ACCOUNTS TFSAs are now an established part of an investment portfolio. They can be used as a top-up to an existing portfolio or to diversify it, for example, to increase exposure to offshore investments, or to save for a long-term goal, such as children’s education.

Stockbrokers are key providers of TFSAs. Many have put in much effort to create a compelling offer for first-time investors to get involved in the stock market — and have done so even though profit margins for brokers on such accounts are extremely thin at best. We support those endeavours with a prize for those we think have created the best offerings.

Investors can save up to R33,000 a year with a lifetime limit of R500,000 with all gains free of tax. TFSA regulations do not allow direct investments in listed equities, but do allow for access to the equities market through ETFs. Such funds invest in a portfolio of shares and represent a cheap way to get exposure to diverse equity investment.

Equities tend to be more risky than alternatives like bank accounts, but the evidence is clear that in the long run

Easy Equities is strong on costs and received positive ratings

they outperform. Stockbroker accounts are also the most tax efficient, allowing investors to avoid capital gains tax and dividends tax.

Because of the restrictions, most brokers offer the same range of ETFs. Our assessment therefore considers price, awareness, ease of opening an account and client views.

Clients’ assessments of their broker’s TFSA product was the main determinant of the rankings. They rated their brokers on costs, the range of products in which they could invest, ease of opening an account and overall quality of the TFSA offering.

First place goes to EasyEquities, which is strong on costs and received overwhelmingly positive ratings from clients. Rand Swiss is second, with Standard Bank OST/Stockbroking third.

EasyEquities, Standard Bank OST/Stockbroking and others have created special low-cost accounts just for investing in ETFs.

Stockbrokers have largely kept in mind the overall goal of getting more first-time investors into the market and have kept prices extremely low.

While low margins and high volumes are the core business model for stockbroking generally, with TFSAs this is even more of a factor.

The TFSA regime seems to be working. An Intellidex survey last year shows that from the launch of TFSAs on March 1 2015 to February 2017, 460,609 such accounts had been opened, of which 30,205 were through stockbrokers. Assets in stockbroking TFSAs totalled R614m, an average of R20,313 per account.