How Do You Choose the Best Tax-Free Savings Account?

Mar 07, 2016
Author: Ean Barnard

Fincheck is a firm believer in saving for a rainy day. As a human, you know that you’ll have those days in life that you’ll be faced with unexpected expenses. And you’ll either be wishing you had some savings, or you’ll be thanking yourself for saving in the past. It’s a new year and we trust that you’re well on track on your savings plan of action!

Money speaks only one language: “If you save me today, I will save you tomorrow.”

A quick recap on a Tax-free savings account:

A tax-free savings account is designed to help you save more. All the proceeds of a tax-free savings account, including interest income, capital gains and dividends from these accounts, are tax-free. These accounts can invest in equities, fixed income accounts or both. There’s a cap on the amount in that the total contribution that will qualify for tax exemption is R30 000 per annum, up to a maximum of R500 000 per lifetime. In this post we’d like to explain to you how to choose the right tax-free savings account for you, so if you’d like to read more on tax-free savings first, read here on What Exactly is a Tax-Free Savings Account?.

The 2 most important aspects to look at in choosing your tax-free savings account:


The benefits and features of tax-free savings accounts in South Africa are mostly the same. The main thing in choosing the best one for you would be to look at the fees applicable. Tax-free savings accounts can be issued by banks, long-term insurers, managers responsible for collective investment schemes, government, mutual banks and cooperative banks. These institutions will ask an admin/brokerage fee, so it’s vital that you shop around to get the best deal. The fees you can be charged for investing through a tax-free savings account must be reasonable, according to the regulations under the Income Tax Act. Many product providers have priced their tax-free savings accounts attractively as they compete for your savings. Most unit trust companies are not charging fees for investing in their tax-free savings accounts, charges apply only to the underlying funds. You’ll also pay an advice fee if you invest through a financial adviser, but this fee is negotiable.

The fee of a fund offered on a platform is generally cheaper than the fee charged by a fund that is offered directly, as unit trust companies receive investments in bulk through a platform. If you invest through an investment platform, check the total fee - the platform fee plus the fund fee you’ll pay if you invest in a certain class of fund, and don’t forget that there may be costs for switching between funds.

An example of a deal is that of Old Mutual. They’re offering a tax-free savings account with an administration charge of 0.75 percent for an investment that enables you to access a range of unit trust funds from top managers. There will be asset management fees on the underlying funds. Old Mutual says it will reduce the administration fee to 0.5 percent if you agree to invest only in Old Mutual funds, and the fee will be reduced by half if you invest the maximum allowed R30 000 annually.

Just like this deal, there are many great deals available at South Africa’s top banking institutions such as ABSA, Standard Bank, FNB, Nedbank, Capitec and also from top asset managers such as Investec and many more.  

This leads to the second aspect.


The company you are most happy to engage with will especially form part of making your choice. A tax-free savings account, as we've mentioned above, is mostly generic in its features and benefits set. This means that your experience with some of the companies we've mentioned above will play a big role in your decision. Some people are willing to carry greater cost for the sake of better customer experiences. Others, will rather take the lower cost and the lower quality customer experience. And some will just be after a different experience and will choose one over another due to personal preference. After accounting for the fees,  it will come down to preference.

Whichever aspects are more important to you, feel free to use Fincheck as your trusted partner in comparing the various options available to you and best of luck on your journey to tax-free savings!

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