Saving through a bond vs other saving mechanisms
“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.”