The government continues to encourage South African citizens to save money and reduce the need to borrow cash. To further entice locals to keep a larger portion of their money, the government has introduced a new savings vehicle in the form of a Tax-Free Savings Account.
What is a Tax-Free Savings Account?
The Tax-Free Savings Account (TFSA) is a type of non-retirement savings account designed to maximize tax relief. It can be a fixed-term bank account, money market, unit trust investment a JSE-listed exchange-traded investment fund and more. Capital gains, interests, and dividends earned in a TFSA are 100% tax-free investments. The account can be used to participate in fixed-income deposits, equities, bonds, and other investment vehicles.
The total annual contribution that qualifies for tax exemption is around R30 000, with some providers being able to offer more as part of their marketing strategy. The lifetime contribution limits placed at R500 000 are to deter individuals who plan to abuse the scheme. Contributions in excess of the annual limit or lifetime limit will be subjected to a 40% tax.
Even though there’s a maximum contribution limit per individual, interests gained that exceed the R500 000 limit will still be credited into the tax-free account. This means you can fully benefit from the scheme by maxing out the allowed annual deposit every year. Accumulating a balance of R500 000 as fast as you can and allowing for growth in the account for years is the best way to compound interest and quickly multiply your money for a long term investment.
Best Tax Free Savings Accounts in South Africa 2022
| Bank | Tax Free Account | Nominal Interest Rate (per annum) | More info |
| FNB | Tax-Free Cash Deposit | 3.25 – 3.90% | Apply Online |
| Nedbank | Tax Free Savings Account | 1.75 – 4.5% | Apply Online |
| Standard Bank | Tax-Free Call account | 2.8 – 3.5% | Apply Online |
| Old Mutual | Tax Free Savings Account | You Pick the Funds | Apply Online |
| ABSA | Tax-Free Savings Account | 0.5 – 4% | Apply Online |
| Capitec | tax-free savings account | 2.25 – 5.3% | Apply Online |
| African Bank | Tax-Free Investment | 5.7 – 5.85% | Apply Online |
| Investec | Tax Free Fixed Deposit Account | 4.78% | Apply Online |
Aside from banks, TFSAs may also be offered by long-term insurers, unit trust fund managers, exchange-traded fund managers, government-owned departments providing retail savings bond schemes, mutual banks, and cooperative banks. Existing transactional accounts cannot be converted into tax-free savings accounts. The Treasury usually allows only newly created bank accounts to be used for TFSA. It’s not hard to open a TFSA since all banks offer it.
Tax-free savings accounts are not without charges. They’re free from capital gains tax and similar taxes, but bank charges and other service fees still apply to TFSAs. Choosing a TFSA provider with the lowest charges will work toward increasing your savings.
Benefits of Tax Free Savings Accounts (TFSA)
The amount of money you can save with a TFSA should not be downplayed. It may look small in the short-term, but if you consistently put money into it until retirement, you can gain almost twice the investment returns can be almost twice the amount compared to a taxed savings account.
For instance, you’re 25 years old and you’re investing R30 000 annually on both tax-free and interest-bearing savings accounts. By the retirement age of 65, you would have saved around R1.5 million in your interest-bearing account. But under the same circumstances, you’ll save as much as R2.7 million on the tax-free savings account – that’s almost twice the amount saved on taxes with a TFSA.
However, a tax-free savings account shouldn’t be considered as your sole retirement option. TFSAs can be used to boost your retirement savings but depending on it alone for retirement may not be enough to cover all your expenses by that age.
ALSO LEARN: Top 9 Ways to Boost Your Retirement Savings
All savings deposited in a tax-free savings account is guaranteed by the government. This means that whatever happens, you’ll still get 100% of the money deposited in a TFSA.
Tax-free savings accounts are therefore also a good way to educate children about saving money. It’s possible to open an account on behalf of a child as soon as they’re born. Young ones should immediately be encouraged to open an account and learn to save money for their future.
Furthermore, with these advantages, the government is expecting that tax-free savings accounts will significantly improve the annual savings of South African citizens and teach them how to manage their money wisely.
Although tax-free savings account provides incredible opportunities to save more money, it’s always up to your spending habits how much you can maximize this scheme. Without financial discipline, you still won’t save much for your retirement. Remember to seek financial advice from a finance professional to help decide the best decision for yourself.
Top Providers of Best Tax-Free Savings Account in South Africa
These banks and financial institutions offer TFSAs, but they differ in the benefits they provide to their clients.
# Nedbank Tax-Free Savings Account
Features:
- Free weekly and monthly stop orders to prevent unnecessary withdrawals. The minimum stop order is at R50.
- Interests earned can be paid out on a monthly basis.
- Partial withdrawals of at least R50 can be made after providing a 24-hour notice.
- R36 000 annual limit.
- No monthly commissions and fees.
Requirements:
- Proof of residence like a phone account or a utility bill.
- Barcoded SA ID book for those over 16 years old. Applicants under 16 years old must submit their parent’s or guardian’s SA ID or passport, plus the applicant’s birth certificate.
- A minimum deposit of R500 to open an account.
Contact details:
Phone bankers are available 24/7 through 0860 116 400.
# Standard Bank Tax-Free Savings Account
Features:
- You can withdraw anytime you want. Money put into investments without reaching the maturity date can be withdrawn within 7 days after requesting access to it. Investments with a one-year maturity date can only be accessed 32 days after the request for withdrawal is approved.
- No limit to the number of TFSA accounts that can be opened per individual. The maximum contribution limit per individual applies across all accounts, though.
- R33 000 annual contribution limit.
Requirements:
- Proof of residence like a phone account or a utility bill.
- Barcoded SA ID book or passport.
Contact details:
You can reach them by phone at 0860 109 075. You can also send them an email for any inquiries through information@standardbank.co.za.
# FNB Tax-Free Savings Account (Deposit)
Features:
- Money can be accessed 32 days after your request is approved.
- Flexible contribution methods where you can choose to put in money monthly or as a lump-sum payment.
- Option to enable automatic scheduled transfer to maximize savings.
- R36 000 annual contribution limit.
- No monthly fees or charges.
Requirements:
- A utility or retail account not older than 3 months that clearly states your physical address.
- Income tax number, if possible.
- South African ID book.
- A minimum deposit of R1 000 to open an account.
- Existing FNB clients can apply online. Non-FNB clients must open an account with the bank first to qualify for a tax-free savings account.
Contact details:
You can call their office through 0877 362 247. If you’re busy, you can just fill out the “call me back” form and have FNB call you on the preferred schedule.
# Old Mutual Tax-Free Savings Account
Features:
- Flexibility in choosing where to invest the money.
- Quick access to money.
- Discounted annual administration fees amounting to just 0.5% of the fund value. This is deducted on the account monthly.
- R36 000 annual limitation
Requirements:
- Proof of residence like a phone account or a utility bill that’s not older than 3 months.
- For those of legal age, a barcoded SA ID book or passport is enough. For minors, the ID of their parent or guardian, plus the applicant’s birth certificate are needed.
- Old Mutual bank account details.
- You can start an account for as low as R250.
Contact details:
You can call the Customer Service Centre anytime at 0860 60 60 67. You can also apply online through their website.
# Absa Tax-Free Savings Account
Features:
- Immediate access to your money online or through any Absa branch in South Africa.
- No monthly fees or charges.
- Interest rates increase the bigger your balance is, making it easier to grow your money. Interest rates range from 2.25% to 5.75% per annum.
- R36 000 annual contribution limit.
Requirements:
- Proof of residence like a phone account or a utility bill that’s not older than 3 months.
- South African ID book.
- You can start an account for as low as R1 000.
Contact details:
You can call Absa consultants at 0860 111 515. You can also send them an email at saving@absa.co.za.
# Capitec Tax-Free Savings Account
Features:
- You can open only one TFSA at any Capitec branch.
- Choose from investment terms ranging from 12 to 24 months. An R300 fee will be charged for accessing your money before the maturity date.
- Earn interest on balance starting from R1.
- Interest rates range from 3.50% to 6.59%.
- R36 000 annual contribution limit.
Requirements:
- Proof of residence like a phone account or a utility bill that’s not older than 3 months.
- South African ID book.
Contact details:
Get in touch with Capitec agents through phone by dialling 0860 10 20 43.
# African Bank Tax-Free Savings Account
Features:
- You can open as many TFSAs as you want.
- Interest rates can get as high as 8.25%.
- Original interest rate never drops when invested, but you can benefit from increases whenever the rates rise.
- R36 000 annual contribution limit. The monthly contribution can be as small as R50.
Requirements:
- South African ID book.
- You can open an account for as low as R500.
Contact details:
You can call African Bank at 0800 633 633 or email them at africanbank@tip-offs.com.
# Investec Tax-Free Savings Account
Features:
- Money is available whenever you need it. Funds are available only, though, thirty-two days after your request.
- There are penalty fees for premature withdrawal before the maturity date is met.
- One-year investment option with fixed interest rates averaging 7.31%.
- R30 000 annual contribution limit.
Requirements:
- South African ID book.
- Proof of residence like a phone account or a utility bill that’s not older than 3 months.
Contact details:
Investec agents can receive calls through 086000 0 TAX (829) or answer emails sent to taxfree@investec.co.za.
Frequently Asked Questions (FAQ)
Can I change my tax-free savings account?
It is possible to transfer funds between tax-free savings accounts but the transfers can only be made between the service providers. You should not withdraw the funds yourself from one account and then deposit them into another, this would classify as a new contribution.
Can I open more than one tax-free investment account in my name?
Yes, you can open as many accounts as you would like. It can be a good investment decision to diversify your investment portfolio. However, remember that you must ensure the total of your annual payments across all accounts doesn’t exceed the annual allowance, otherwise there will be a penalty tax.
