FNB tax-free savings account balances grew by 21% year-on-year and volumes increased by 18% year-on-year as customers continue to embrace tax-free savings benefits and take advantage of the high interest rate environment over the past year.
“The growth shows that our customers are adopting and taking advantage of tax-free savings account benefits in light of the high interest environment. This further indicates that there is a growing culture amongst our customers who are starting to save,” says Himal Parbhoo, CEO of Retail Cash Investments.
“Similar to last year, we have seen 11% of customers managing to fully fund their tax-free savings accounts. Over 20% of customers who fully fund their accounts have a scheduled transfer compared to 17% from last year. From the customers who fully fund their accounts, 66% do so through a once off bulk deposit which helps them maximise their returns during the full cycle by benefiting from compound growth,” adds Parbhoo.
The purpose of a tax-free savings account is to save money and allow it to grow over time. It is not intended to be used as a transaction account or emergency fund. This is because the initial contribution counts against your lifetime contribution, so if you contribute the maximum threshold amount and then withdraw from it, you are unable to top it up again during that financial cycle. Any amount contributed above the threshold could be taxed at a 40% rate.
“We have seen a slight decrease of customers withdrawing balances, but there is 32% of customers who have withdrawn balances, resulting in them not fully maximizing on their tax-free savings account benefit,” says Parbhoo.
Therefore, it is advisable to leave contributions untouched to take advantage of your tax-free savings account benefits.
“Rather save for emergencies on a savings account that gives you instant access to your money to avoid being penalized.” Parbhoo adds, “we encourage customers to include tax-free savings account in their long-term financial strategy as the contributions are tax-free up to a lifetime limit of R500 000. This includes capital dividends, dividends, and compound interest growth. The annual contribution cap is R36,000.”
A tax-free savings account has multiple product types which allow you to invest across multiple asset classes such as cash, unit trusts and shares.
“When looking at tax-free savings accounts, consider your savings and investment objectives and your timelines. Also consider exposure to more growth-type assets, such as unit trusts or exchange-traded funds (ETFs) that have a stronger exposure to growth-type assets if the goal is long-term, such as augmenting retirement provisioning,” concludes Parbhoo.
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