IN­TER­EST RATES:

Finweek English Edition - - MONEY -

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.

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