Be smart and don’t pay taxes on your savings
Tax-free accounts are simple to open and with little fees
As the new tax year approaches, most people’s thoughts turn to whether there is any way of saving more of their hard-earned money and reducing their tax burden. The good news is that there is an easy way to do both with a tax-free savings or fixed deposit investment account.
Since the tax-free savings allowance was first introduced by the government in 2015, there has been a lot of excitement about the opportunities that South Africans now have to grow their savings in the long term without having to pay any tax on the interest they earn.
Before tax-free savings and investments options were made available, anyone who saved or invested their money, and earned more in interest than the annual interest exemption would have to pay tax on the growth of their savings or investments above that exemption. The incentive about tax-free savings is all proceeds including interest, dividends and capital gains on the disposable of these investments are fully exempt from tax.
The interest exemption basically means that any interest or capital growth you make on your total savings and investments in a tax year, which, in 2021 was R23 800, won’t be taxed if you are under the age of 65. Any amount you earn in interest over that R23 800 will be taxed at your tax rate for that year. Persons who are 65 years and older will be taxed R34 500.
To get the most out of your taxfree savings, it’s worth making sure that you understand how the different savings and investment products work, and what benefits they can offer you. Here are a few guidelines: • Tax-free accounts are simple to open with little to no fees
Many people are hesitant about saving and investing because they are worried about the costs (stated or hidden) charged by the account provider.
Some also fear that the interest rates offered on money deposited into these accounts are too low to achieve real growth.
A good tax-free savings account addresses both these concerns by charging a competitive interest rate that delivers solid capital growth over the long term.
• Saved money is smart money When placed in an interest-bearing account, saving can yield great returns. Blindly following the latest financial trend is seldom a good way of growing your money. Those who have savings in tax-free accounts are still seeing steady growth, and have the peace of mind of knowing they will never be asked by SARS to pay tax.
• Saving can start now
The most-common reason most people have for not saving is that they think they don’t have the money to start. In fact, a tax-free savings account lets you start saving from as little as R500 a month.
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