How often have you heard it said that money doesn’t grow on trees? Well, it certainly is true; especially if you take a look at the typical interest rates that banks offer on personal savings accounts.
If you aim to save money on a monthly basis, you will find plenty of tips on how to end up the month with money you can put into some sort of savings account. This guide to saving money each month published on the Wonga blog is well worth a look.
But once you have reviewed your spending and created a budget, which if you stick to will allow you to save money, that is far from the end of the story. The biggest problem that savers then face is looking for the right personal savings vehicle. One that in real terms will allow your savings to grow.
What “real terms” means in terms of savings
You will probably have heard of the phrase “real terms” before but may not know what it means. So, let’s give you a brief run-down. As we all know to our detriment, prices are never stable. They very seldom ever drop. They usually rise. So, if you save R100 this month, you can buy x amount of goods and services.
But in three- or four-months-time, or even longer, that same R100 won’t cover exactly the same number of things you could purchase. Because prices generally rise, an identical given quantity of items will cost you more in future. This increase is driven by inflation, and it is your savings’ worst enemy.
Inflation in South Africa at the end of May 2019 was measured at around 4%. This is within the national bank’s target range of between 3% and 6.75%.
The best savings rates available in South Africa
The best interest rates that South African banks currently offer is somewhere between 8% and 9.25%. This is well above inflation. There are, however, two catches.
The first is that higher rate savings accounts demand heftier minimum investment amounts, typically between R1,000 and R10,000. In addition, you cannot make withdrawals inside specific time frames. These are known as fixed rate savings accounts.
You can, however, invest your money in something called open savings accounts. The minimum you can invest is much smaller – typically R25 to R100. You can also gain immediate access to your savings. There is no fixed period.