Sav­ing through a bond vs other sav­ing mech­a­nisms

Finweek English Edition - - MONEY - 10% pre­paid re­pay­ments 20% pre­paid re­pay­ments 30% pre­paid re­pay­ments

“Say yo ur home


in­ter­est rate is 9.25%, the cur­rent prime rate. By pay­ing money into that home loan for your pri­mary res­i­dence you are ef­fec­tively earn­ing that rate of in­ter­est with­out tak­ing any risk and with­out mak­ing your­self li­able for any tax by pay­ing off that loan quicker. And you can get your hands on that money at any time,” says Nel.

You would be hard-pushed to get any­where near that in­ter­est rate by in­vest­ing your money in a sav­ings ac­count, plus you will prob­a­bly have to lock your money up for a few years, he adds.

Says War­ren In­gram, direc­tor at Galileo Cap­i­tal: “If you were an in­vestor you could not get a bet­ter in­ter­est rate on cash than that. Sav­ing the in­ter­est that you would have paid makes a lot of sense and is also tax ef­fi­cient.”

Says Ferdi Booy­sen, head of strate­gic re­la­tion­ships at Old Mu­tual Wealth: “There is no harm in us­ing

Re­pay­ment op­tions on a home loan of r1m

i nvestable funds to set­tle your mort­gage, but you should not do this at the ex­pense of other sav­ings.”

The other sav­ings he is specif­i­cally re­fer­ring to are re­tire­ment sav­ings. “The tax benefits of us­ing in­vestible funds for your re­tire­ment in­clude the abil­ity to deduct a por­tion of your con­tri­bu­tion from your an­nual tax. The growth you earn in a re­tire­ment fund is also ex­empt from in­come tax on in­ter­est, div­i­dend with­hold­ing tax and cap­i­tal gains tax.”

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.