6 reasons why a tax-free savings account is a no brainer
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OPINION By Stuart Theobald, 18 May 2015
You are in one of two situations: you have savings or you don’t. Either way, a tax-free savings account will make you better off right now. If you are saving, a tax-free savings account is a much, much, better way to do it. If you don’t save, a tax-free savings account is the easiest, simplest, way to start saving and becoming financially secure right now. 
Here are six really good reasons to have a tax-free savings account:
1. The money is always available. At most an account can take seven days to transfer your cash back to you. Most take less than a day.
2. You don’t pay tax. That’s mostly the point. In some cases, like dividends tax, TFSAs are the only possible way you can avoid this tax. It takes 15% of any dividends you receive. Over time, as your savings grow, the tax savings become more and more important.
3. Minimum investment amounts are usually pretty small. Many accounts will take lump sums of R350 or monthly contributions of R200.
4. The accounts are low cost. The rules forbid certain types of charges like performance fees. Many accounts have been structured to ensure they are cheaper than equivalent taxable products. So it’s not only the tax you save, but also fees.
5. The moment you start saving you will be on your way to financial security, ensuring you are not vulnerable to short-term financial shocks.
6. There are higher returns on offer. That’s because the accounts are more competitive in that its easy to compare them. For instance, here’s a comparison of the rates banks are offering on the accounts. In many cases they beat the rates they offer for non-taxable accounts.
Here are the reasons that people often don’t save:
1. It’s complicated to understand how to save. Some savings products involve shares and other complex financial products. We’ve created a handy how to guide with all the information you need. Tax-free savings accounts have been designed to be pretty simple to ensure they are easy to understand. The investments you can go into range from normal fixed deposits through to shares and unit trusts.
2. You don’t have any extra cash to save. Once you are a saver you are immediately more financially secure. You immediately start earning money on your savings. Look through your current costs to find savings you can direct into a TFSA. For instance, many of us pay bank charges we don’t need to if we just changed the timing of when we do things like making payments into a credit card. If you really can’t find any savings, promise yourself that the next salary increase or bonus you get will go into a TFSA.
3. Financial advisers don’t promote TFSAs. Well, some that genuinely try to do the best for their clients do. But others recommend products that pay them higher commissions. Advisers don’t get anything for recommending TFSAs.
South Africans have a poor savings culture. Many of us choose to borrow short-term money in the form of unsecured loans in order to have spending money. That makes us permanently dependent on debt, and it costs money (sometimes a lot) to service that debt. Imagine yourself turning that around – becoming a saver and earning money for it, rather than paying money to be financially insecure. Do you like that future? Start down the right track by using our investment picking tool to find TFSAs that would be right for you by clicking here.
Stuart Theobald is chairman of Intellidex. He holds the Chartered Financial Analyst designation and is doing his PhD at the London School of Economics.
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