I have come across a few cases recently where clients have been sitting with large amounts in bank “money-market” accounts. R3.5m sitting in a money-market account earning 3.4% is not okay (from FNB but the others are no better). First, it is around 2.5% below (official) inflation, which effectively means that even though you think you are not taking any risk, you are in reality losing at least 2.5% of your capital each year. Banks are not a safe place to save or invest money!
The best place to “park” money (even for a month) is in a money market unit trust account – no fee in or out, access to (all) your funds within 48 hours and the rate is currently around 5% per annum – regardless of how much you invest (there are minimum amounts but you should be able to access one for around R1 000 a month). Just one up from a money market in terms of risk and return are (enhanced) income funds. Risk of capital loss over periods of 12 months or more is very small and we expect around 7% per annum from these kinds of funds currently. I use one of these as my “emergency fund”, which includes the money for school fees and provisional tax payments.
This is similar to the rant above but Capitec is aggressively marketing its “Global One” account, with its very low monthly fee of R4.50. Yes, it is low, but not that low and not that great – there are transaction fees on top of that so you could very quickly ramp that fee up substantially.
Added to this, Capitec also advertises attractive interest rates on its accounts – if you have less than R10 000 in one of its accounts you will currently earn 5% interest per annum. Not bad, you say, but do the maths. Five percent on R10 000 equates to around R500 a year but you still have to take off the (minimum) monthly fee of R4.50 so you then end up with around R446 a year. This gives you a net interest rate of 4.46% maximum per annum.