Banks’ tax-free cash account interest rates compared

Savers who are making use of cash deposits for their tax-free savings will be well-rewarded if they shop around and compare the rates on offer from the various banks.

Of course, this kind of savings vehicle does not and will not suit every person, but there are those who, due to their life stage or specific circumstances, want (or need) to have a cash investment.

Since the launch of tax-free savings accounts (TFSAs) in 2015, banks have offered savings products within these tax-free wrappers. The annual contribution limit is currently R36 000 per year, with a total lifetime contribution limit of R500 000.

Some cash-based savings products in these wrappers are normal access accounts, some require notice, while others are fixed deposit accounts that typically run for a 12-month term, whereafter funds can be reinvested for a further 12 months.

Regulations require access of funds within 32 days when products have a term of maturity (in other words, fixed deposits). With some providers, an early withdrawal fee is payable if funds are required immediately.

The interest rates compared are the quoted nominal annual compounded monthly (NACM) as published. This translates to a slightly higher effective (annual) interest rate because of compounding.

Rates vary

Interest rates vary substantially between approximately 2% and over 5%, largely depending on balances. Higher interest rates generally require balances in excess of R100 000 which means the accounts will have had to be open for more than three years.

Two banks, Absa and Nedbank, offer both a fixed deposit account as well as a normal (access) savings account within the TFSA wrapper. In these instances, the fixed deposit interest rates are higher than those of the access accounts. This is logical given that banks have certainty that the former deposits are (mostly) ‘fixed’ and can therefore utilise this funding over a longer term.

Five banks – Absa, African Bank, Discovery Bank, Investec and Sasfin – pay a flat interest rate, regardless of balance.

Two of the five currently offer the highest interest rates in the market for cash-based tax-free wrappers: African Bank (5.85%) and Discovery Bank (5.15%). These rates are very favourable when compared with oft-recommended RSA Retail Savings Bonds. The two-year fixed rate of these products is currently 6.25%.

Both banks have been successful at attracting retail deposits (comprising not only tax-free savings) from their respective customer bases.

By February 24, Discovery Bank had a total of R6.3 billion in retail deposits from 298 000 clients.

African Bank had a retail deposit book of R6 billion as at end-September from 50 000 customers. Average account balances were R105 000.

Bank	Account	Interest rate (nominal/NACM)
Absa	Tax-free fixed deposit	4.75%*
Absa	Tax-free savings	2.5% to 4%, depending on balance**
African Bank	Tax-free investment	5.85%
Capitec	Tax-free savings account (12 months)	2.25% to 3.8%, depending on balance
Capitec	Tax-free savings account (24 months)	2.25% to 5.23%, depending on balance
Discovery Bank	Tax-free notice savings account	5.15%
FNB	Tax-free cash deposit	3.25% to 3.9%, depending on balance
Investec	Tax-free fixed deposit account	4.63%
Mercantile Bank (a division of Capitec Bank)	Tax-exempt savings account	2.75% to 5%, depending on balance
Nedbank	Tax-free savings account	2.5% to 4.5%, depending on balance***
Nedbank	Tax-free fixed deposit	4.35% to 4.75%, depending on balance
Sasfin	Tax-free savings	4.15%
Standard Bank	Tax-free call investment account	2.8% to 3.5%, depending on balance

* Paid at maturity

** 0.5% for balances under R15 000

*** 1.75% for balances under R2 500 and 2.25% for balances between R2 500 and R24 999

All rates as at April 15, 2021.

A cunningly alternative way to put away that tax-free R36 000 – listen to this MoneywebNOW podcast with Simon Brown (or read the transcript here):