Many South Africans have probably withdrawn some or all of the savings they had pre-Covid-19, out of necessity to cope with steep monthly expenses. Whatever amount South Africans can afford to save today, they should do so with the long-term in mind, because this is where tax-free savings are most beneficial. This savings month, Assupol encourages South Africans to take advantage of the benefits of tax-free savings.
Earlier this year, Business Tech conducted a survey, in which 76% of participants said that they save less than 15% of their monthly salaries towards retirement, while 34% indicated that they don’t save at all. Taking into account the economic downturns that affect South Africans, the rapid rise in living costs makes it even more difficult for anyone to save.
“It has often been said that South Africans don’t save enough, but the reasons for this could vary from not having enough disposable income to save, bad habits or not knowing what types of savings accounts are best for one’s savings goals. The greatest benefit of saving tax-free is the compound interest that these accounts have the potential to gain over a person’s lifetime. By saving with the intention to access your money after at least 5 years (but hopefully much later), consumers can reinvest the interest or income they earn from their investment, tax-free, helping them get closer to their savings goals,” said Jurie Nel; Senior Executive Manager, Product Development at Assupol.
Tax-free savings were introduced in March 2015 by the South African Revenue Service, to encourage households to save – they offer enhanced returns because money invested into tax-free savings accounts is not subject to tax on interest, dividends or capital gains. The qualifying accounts include fixed deposits, unit trusts (collective investment schemes), certain endowment policies issued by long-term insurers as well as other linked investment products. Tax-free savings accounts enable consumers to deposit up to R36 000 per year; limited to R500 000 in their lifetime.
“Many people are making tax-free savings accounts part of their retirement savings plans, and when framed in this context, it makes for an attractive option for people looking to build a more secure investment over time,” concluded Nel.
Tax-free savings are not a solution for earning returns quickly, but they are a promising tool for building long-term wealth. Because of the yearly and lifetime limits, it is important not to withdraw savings in the short term. Assupol’s One Tax-Free Savings policy offers One Bonus which is added to the savings of clients after 5 years, as a reward for their discipline in saving. Consumers are encouraged to take advantage of the benefits that are available to them.