Don’t bank on a sav­ings ac­count to beat in­fla­tion

With a few ex­cep­tions, the in­ter­est rates on bank sav­ings prod­ucts are well be­low in­fla­tion – un­less you’re will­ing to leave your money in the bank for the long term. Angelique Ardé re­ports

Weekend Argus (Saturday Edition) - - GOODPOSTER -

In aid of National Sav­ings Month, we asked the big four banks to rate their best sav­ings prod­ucts for de­posits of less than R10 000 and for de­posits of more than R10 000. Their rec­om­men­da­tions, along with the of­fer­ings of two smaller banks, show that it does not al­ways pay to save at the bank.

It be­ing Sav­ings Month, you may have heard some of the banks mak­ing a fuss about cer­tain sav­ings prod­ucts.

Absa re­cently launched the De­pos­i­tor Plus ac­count, which it de­scribed as “a true game-changer for sav­ings across all in­come brack­ets”, while African Bank boasted about the “mar­ket-top­ping” in­ter­est rates on of­fer on its sav­ings prod­ucts.

The 9.5 per­cent that African Bank is of­fer­ing is in­deed a “mar­ket­top­ping” rate, and in this low-in­ter­e­strate en­vi­ron­ment, the five per­cent that Absa is of­fer­ing isn’t too shabby ei­ther. But how much money do you need to de­posit and how long do you need to leave it in the bank to qual­ify for th­ese rates? You’ll need R5 000 in­vested for five years in or­der to earn 9.5-per­cent in­ter­est a year at African Bank and you’ll need a cool R10 mil­lion to earn five per­cent at Absa.

As th­ese ex­am­ples show, the best

For de­posits of un­der R10 000: Ar­rie Raut­en­bach, the head of re­tail bank­ing at Absa, rec­om­mends the bank’s re­cently launched No­tice Se­lect ac­count. This de­posit ac­count al­lows you to choose your no­tice pe­riod (be­tween 15 and 90 days) and what por­tion of your money you want avail­able to you on de­mand (be­tween 10 and 50 per­cent). Your in­ter­est rate is de­ter­mined by the no­tice pe­riod you se­lect, the por­tion of your money that is avail­able to you on de­mand and your bal­ance.

You need R1 000 to open the ac­count. There is no monthly fee and nor do you pay de­posit or withdrawal fees. The only fee is a penalty fee for ac­cess­ing more than the amount avail­able on de­mand be­fore your se­lected no­tice pe­riod.

On a de­posit of R1 000 held for 90 days and with 10 per­cent avail­able to you, you can earn 3.15-per­cent in­ter­est. No­tice Se­lect of­fers tiered in­ter­est rates rang­ing from 2.25 per­cent to four per­cent on a de­posit of R9 999.

For de­posits of more than R10 000: In ad­di­tion to No­tice Se­lect and fixedterm de­posits, Absa rates the new De­pos­i­tor Plus. On this ac­count, you can ac­cess your money at any time and de­posit ad­di­tional amounts at any time – and at no cost if the de­posits are done elec­tron­i­cally. The ac­count at­tracts no monthly fees.

A min­i­mum ini­tial de­posit of R15 000 is re­quired to open the ac­count and you must main­tain a min­i­mum bal­ance of R1 000 to keep the ac­count open.

In­ter­est of 3.7 per­cent is paid on the low­est tier (de­posits of R15 000 to R24 999), and in­ter­est of five per­cent, which is the high­est rate on of­fer on this ac­count, is paid on the high­est tier (on de­posits of R10 mil­lion to R25 mil­lion). African Bank of­fers three sav­ings prod­ucts: fixed de­posit, ac­cess fixed de­posit and no­tice de­posit ac­counts. The no­tice de­posit ac­count is a 32-day no­tice ac­count, with a min­i­mum in­vest­ment amount of R1 000. You can cur­rently earn in­ter­est of 5.5 per­cent a year on this ac­count.

You need a min­i­mum of R5 000 to open a fixed de­posit or ac­cess fixed de­posit ac­count at African Bank. On in­ter­est may be out your reach – or the strings at­tached might make the prod­uct unattrac­tive or un­suit­able for you. You also need to con­sider in­fla­tion, which is cur­rently 5.6 per­cent. If you’re earn­ing in­ter­est at a rate that is lower than in­fla­tion, money sit­ting in a sav­ings ac­count is, in fact, be­ing eroded.

Prem Goven­der, the chair­per­son of the South African Sav­ings In­sti­tute, says it’s no won­der that there is R45 bil­lion sit­ting in stokvels.

“Al­though there would be lit­tle, if any, growth on that money, peo­ple still feel more com­fort­able leav­ing their money in a stokvel than in a bank, Goven­der says. “It’s a trust is­sue – and the fact that con­sumers are averse to mas­sive charges. We get told over and over: ‘My money might not be earn­ing [any in­ter­est], but at least I’m not los­ing any­thing [to bank charges].’”

Goven­der says that if the banks re­ally want to in­cen­tivise con­sumers to save, they need to “get creative”.

“Like a store would have a loss leader to at­tract you into the store, so that when you’re there, you’ll buy other things, surely the banks can come up with in­no­va­tive ways to en­cour­age peo­ple to save?” both ac­counts, the longer you stay in­vested, the higher the in­ter­est earned. In­vest­ment terms on both ac­counts range from three to 60 months (al­though there is no 48-month term).

The ac­cess fixed de­posit pays be­tween 5.55 per­cent (on in­vest­ments held for three months) and 8.20 per­cent (for money in­vested for 60 months). The fixed de­posit pays in­ter­est of be­tween 5.65 per­cent (over three months) and 9.50 per­cent on money in­vested for 60 months. Th­ese terms and rates are fixed, and none of African Bank’s sav­ings ac­counts at­tracts fees.

For de­posits of un­der R10 000: Aasha Pa­tel, the head of trea­sury fund­ing at African Bank, rec­om­mends the 60-month fixed de­posit. Pa­tel says the prod­uct is suited to the in­vestor who wants to pre­serve cap­i­tal and en­joy reg­u­lar, fixed in­ter­est pay­ments. You can elect to re­ceive your in­ter­est monthly or twice a year, or you can cap­i­talise it, but in essence the longer you in­vest a sum of R1 000 or more, the more it will ben­e­fit you. The ac­count at­tracts no fees.

For de­posits of more than R10 000: Pa­tel rec­om­mends the 12-month Ac­cess Fixed De­posit. She says it of­fers the shorter-term in­vestor the best of both worlds, with cash-flow flex­i­bil­ity and com­pet­i­tive in­ter­est rates. You can draw up to 30 per­cent of your ini­tial in­vest­ment over the term of the de­posit – within 48 hours (at no cost) – “while still pay­ing a very at­trac­tive in­ter­est rate of 6.20 per­cent”. You don’t pay bank charges. Capitec of­fers just one ac­count – the Global One, which is a trans­ac­tion-cum­sav­ings ac­count with a monthly fee of R4.50. You need only R25 as an open­ing bal­ance. On the Global One, you earn five-per­cent in­ter­est on bal­ances of less than R10 000. Bal­ances of R10 000 or more at­tract in­ter­est at 4.25 per­cent.

You can cre­ate var­i­ous sav­ings plans (up to four) within the Global One ac­count. In other words, you can ring-fence amounts of money in your ev­ery­day ac­count for dif­fer­ent

A re­cent ThinkMoney sur­vey shows that most con­sumers are look­ing for the best in­ter­est rate when com­par­ing sav­ings prod­ucts. Fifty per­cent of re­spon­dents said high in­ter­est is most im­por­tant to them; 31 per­cent rated low fees as most im­por­tant and 12 per­cent said they want im­me­di­ate ac­cess to their money. Eight per­cent said they use their bank ac­count for sav­ings.

When com­par­ing what the banks of­fer (see “The best from the banks”, be­low), re­mem­ber that all in­ter­est rates quoted are an­nual rates (so you will get a pro rata rate for terms of less than a year), but, de­pend­ing on the type of ac­count, in­ter­est can be cal­cu­lated on a daily, monthly or yearly bal­ance, and can be paid out monthly or an­nu­ally. If you choose to re­ceive your in­ter­est monthly, some banks give you a slightly lower rate than if you choose to re­ceive it an­nu­ally. When you re­ceive your in­ter­est an­nu­ally, you ben­e­fit from com­pound­ing (in­ter­est on in­ter­est).

Check if the bank is quot­ing you a nom­i­nal rate or an ef­fec­tive rate. The nom­i­nal rate is the stated or sim­ple pur­poses, in­clud­ing long-term goals.

Charl Nel, the head of com­mu­ni­ca­tions at Capitec, says th­ese sav­ings plans help clients bud­get bet­ter. “My gran used to work with en­velopes (al­lo­cat­ing bud­geted amounts for var­i­ous monthly ex­penses); this works in a sim­i­lar way. I have a cou­ple – one for en­ter­tain­ment, one for hol­i­day sav­ings, etc. I keep less than R10 000 in each of them to get five-per­cent in­ter­est.”

Your sav­ings plans can be flex­i­ble, fixed-term (sin­gle de­posit op­tion or mul­ti­ple de­posits op­tion) or both. If you go the flex­i­ble sav­ings route, the above rates ap­ply. But if you opt to make a sin­gle de­posit and save for a fixed term (of be­tween six months and five years), you can earn be­tween 5.5 per­cent (over six months) and 7.8 per­cent (49 to 60 months) on de­posits of more than R10 000. On a sin­gle de­posit of more than R100 000 in a fixed-term sav­ings ac­count, you can earn up to 8.5-per­cent in­ter­est a year for 49 to 60 months.

For de­posits of un­der R10 000: Aneesa Razack, the head of strate­gic growth at FNB In­vest­ment Prod­ucts, rec­om­mends the My No­tice De­posit ac­count, which at­tracts no monthly fees. You need R100 to open the ac­count and can ac­cess all of your money at 45 days’ no­tice, at no cost. On de­posits of up to R9 999 you get in­ter­est of 1.80 per­cent.

For de­posits of more than R10 000: FNB’s Flexi Fixed De­posit ac­count al­lows you two free with­drawals of up to 15 per­cent of your avail­able bal­ance dur­ing the in­vest­ment term. It pays in­ter­est at 3.75 per­cent for de­posits of more than R10 000, and you can in­vest over three months or 12. You need only R100 to open the ac­count, which at­tracts no monthly fees.

For de­posits of un­der R10 000: Leon Daniels, the head of fund­ing at Ned­bank, rec­om­mends the bank’s Green Sav­ings Bond, a fixed-term in­vest­ment of­fer­ing “highly com­pet­i­tive rates”. You need R1 000 to in­vest and rate, which ig­nores the im­pact of com­pound­ing, whereas the ef­fec­tive rate shows the ef­fect of com­pound­ing.

Re­mem­ber also that some banks of­fer pref­er­en­tial in­ter­est rates to “se­nior” clients – aged 55 and older.

AL­TER­NA­TIVES

If you can af­ford to in­vest for up to five years or more, unit trust funds and RSA Re­tail Bonds will gen­er­ally give you a bet­ter re­turn than bank de­posits. How­ever, with unit trust funds your re­turns can­not be guar­an­teed, so you carry the risk. Unit trusts can have high min­i­mum in­vest­ment amounts, but there are some that ac­cept small monthly or lump­sum amounts.

For ex­am­ple, you need only R50 a month or a lump sum of R500 to in­vest in the Stan­lib Eq­uity Fund. The fund has de­liv­ered a 26.58-per­cent re­turn over the past year, 21.67 per­cent a year over three years, and 6.68 per­cent a year over five years.

But be­ware of pure eq­uity funds and those with ex­po­sure to eq­ui­ties: per­for­mance is volatile, so you should in­vest for at least three years. can earn be­tween 5.93 per­cent (over 18 months) and 7.44 per­cent (over 60 months). You can also in­vest over 24 or 36 months. There are no fees.

For de­posits of more than R10 000: Daniels rec­om­mends Ned­bank’s JustIn­vest money mar­ket ac­count, which of­fers rates tiered ac­cord­ing to your bal­ance. You need R5 000 to open the ac­count and can make ad­di­tional de­posits of R500 or more at any time. You get four free cash de­posits a month, pro­vided they do not ex­ceed R5 000 in to­tal. The JustIn­vest ac­count pays in­ter­est of four per­cent on a bal­ance of be­tween R10 000 and R19 999. To earn the high­est rate on of­fer (4.75 per­cent), you need a bal­ance of at least R500 000.

For de­posits of un­der R10 000: Su­gendhree Reddy, the head of per­sonal bank­ing at Stan­dard Bank, rec­om­mends three ac­counts: the Con­trac­tSave ac­count, a 32-day no­tice ac­count and a fixed de­posit. On Con­trac­tSave, you com­mit by debit or­der (of no less than R100 a month) to sav­ing for a set term of be­tween one year and 20 years. On bal­ances of less than R10 000 you earn in­ter­est of 3.25 per­cent. You also earn bonus in­ter­est for each year that you leave your money in the bank. Bonus in­ter­est in­creases ev­ery year, un­til the fourth year, to two per­cent “at which point you earn an ad­di­tional two per­cent a year in per­pe­tu­ity”. (Al­though you can make ad­di­tional de­posits, Con­trac­tSave is for reg­u­lar monthly sav­ing – not for lump-sum de­posits.)

On amounts of R250 to R9 999 in a 32-day no­tice ac­count, Stan­dard Bank pays in­ter­est of be­tween two per­cent and 2.02 per­cent. On bal­ances of less than R10 000 in­vested with a no­tice pe­riod of be­tween 33 days and three months, you get 3.50 per­cent.

On Stan­dard Bank’s or­di­nary fixed de­posit, if you in­vest at least R1 000 for 48 to 60 months, the bank will give you 4.80 per­cent in­ter­est.

For de­posits of more than R10 000: If you have R100 000 or more to save, Reddy rec­om­mends the bank’s Money Mar­ket Call ac­count. On the low­est tier (bal­ances of R100 000 to R249 999), you’ll earn in­ter­est of 4.35 per­cent, and on the high­est (R20 mil­lion and more), you’ll earn in­ter­est of 4.50 per­cent.

RSA Re­tail Bonds of­fer above-in­fla­tion re­turns, which are guar­an­teed. The RSA In­fla­tion Linked Re­tail Sav­ings Bond is of­fer­ing 2.25 per­cent above in­fla­tion over 10 years, 1.25 per­cent above in­fla­tion over five years, and one per­cent above in­fla­tion over three years.

War­ren In­gram, a fi­nan­cial plan­ner at Galileo Cap­i­tal, says that when choos­ing a sav­ings ve­hi­cle, your cri­te­ria should be your time frame and your unique tol­er­ance for risk. “If you tell me you want to save but might need the money in two years, an in­ter­est-bear­ing in­vest­ment, such as a fixed-de­posit ac­count, is your only op­tion. If you have three to five years, a mod­er­ate-risk unit trust fund would be fine. But if you have five to seven years, a bal­anced fund or shares could be the way to go.”

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