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How to choose a savings product
Jocelyn Newmarch
Posted Tue, 26 Apr 2005
If you have cash put aside, there are a range of products available. You can choose to put your money into a fixed deposit product or money markets, or to use a call or notice account, or special savings account offered by your bank. You can also invest in government retail bonds. Each of these options has their own advantages; whether they're right for you depends upon your goals and wants.
Money markets? What’s that?
Simply put, when you invest in money markets, you are investing in money itself.
A money market unit trust is a collective investment scheme. The fund manager will collect your savings together with other members of the unit trust, and invest the money into a spread of different products with different terms to maturity and interest rates, in order to get you the best return on your money.
When you buy into a money market unit trust, you are buying the fund manager’s expertise, Derek Alton, head of client advisory at BoE Private Clients explained.
And a money market bank account?
A money market bank account "could be anything", said Alton. Money market accounts include fixed deposit accounts and call and notice accounts. If you want to invest in this type of account, Alton said, be aware that products vary from bank to bank. "Find out what the underlying term and detail is."
Your risk is very low, and your investment will be as safe as the bank it is invested in. "You can’t say it is zero, because banks have folded, but they’ve also tended to be rescued by other banks."
Bank account options
A fixed deposit bank account is useful for someone who has a lump sum they want to invest, at low risk, but still yielding a good interest rate, which is secured for the term of your investment.
If you want to save on a monthly basis, think about a call or notice account. These also offer good interest rates, and the liquidity — how quickly you can access your money — varies according to the specific product. You may have to give 30 days’ or 60 days’ notice before you can access your money. Old Mutual Bank, for example, offers an account with a one-day notice period after you have invested for 30 days.
Banks also have various savings accounts. First National Bank offers the million-a-month account, which pays 0.25 percent interest (optional) on a 32-day notice account. No service fees are payable but all account holders have the chance to win a million rand every month.
On the less gimmicky side, Old Mutual Bank has an Old Mutual Grow account where you commit to a certain monthly amount (from R100) and at the end of twelve months, the bank pays you a bonus of 50 percent of your monthly premium, capped at R1000. This is on condition that you haven’t withdrawn any money over the year.
Government retail bonds
If you’re willing to lock your money away for a couple of years, consider government retail bonds. You need to have at least R1000 available, which you can invest for two, three or five years. This is a virtually no-risk investment, as you are lending money to the government, and the interest rate is locked in for the term of your investment. The current rate on retail bonds varies from 7.5 percent to 8.2 percent.
Find out more about retail bonds at https://secure.rsaretailbonds.gov.za/.
How much interest can you expect?
Interest rates vary according to the amount you invest and the product you invest your money in, as well as from bank to bank. Generally, Alton says a seven percent interest rate would be a very good one, but it might be difficult for you to get it. He says you can expect to earn around six or six and a half percent for cash on call.
But if you have a good relationship with your bank, it might be worth your accepting a slightly lower interest rate, as moving your money to another bank can be more costly and result in extra hassle for you, Alton advised.
