Grow your investment with a tax-free account

What is a tax-free savings account?

A tax-free savings account can be an on demand (call account) account, a unit trust investment, a JSE-listed exchange-traded fund and more. There is an annual limit on contributions of R36 000 or a R500 000 lifetime limit.

The benefits that come with a tax-free savings account include:

• Proceeds earned from it, including interest income, capital gains and dividends, are exempt from tax. As such, you will receive your full investment return without being taxed on the growth you earn.
• There are no penalties when you decide to make a withdrawal.

How a tax-free savings account can accelerate your wealth

• Use it to create wealth for your children

Growing your savings in a TFSA means that when it’s time to make a withdrawal, you can benefit from the full return or growth. You can use it to build an investment so that you can pay for things that could empower your child’s financial journey, such as education, a car and accommodation. Furthermore, you can open a TFSA for your child in their name*, which they can use to grow their own investment.

• Use it to boost your retirement savings

A TFSA can serve as a key component in a well-rounded retirement plan. While your other retirement investments can be used for living expenses, a TFSA can help you further benefit from tax-efficient retirement saving options that can supplement your retirement income and still provide you with a way to grow your money.

• Use it to increase your investment capabilities

You can start investing from as little as R250 and add to your TFSA as, when and how much suits you (within the contribution limits), allowing you to slowly but consistently put away money that could accumulate to something more significant.

Since there’s no limit to how your money can grow, your cumulative contributions together with compound interest could achieve significant growth, and you can use that growth or a portion of it to reinvest in other vehicles and assets to accelerate your wealth building.

Tips to maximise your tax-free investment

• Start as early as possible: there is no need to wait until you have a certain amount to invest as a lump sum; instead, you can start with just R250 per month.
• Treat it as a long-term investment plan: tax savings increase over time as compound growth is earned on the tax saved, so the longer you invest, the more your money will grow.
• Avoid making early withdrawals: it can be tempting to use your tax-free savings, but remember that once an amount is withdrawn, that amount is deducted from your lifetime contribution limit.
• Increase your monthly contributions where possible: you may start out only investing R250 per month, but if you find yourself in a position where you can increase your monthly contribution, it’s worth increasing that amount. The more you save, the greater the reward at the end of the investment period. Just remember to stick to the contribution limit; otherwise you’ll face tax penalties.
• Invest in growth assets: to get the best return on your investment, make sure your growth assets include as much as possible to maximise your long-term growth and ensure that your investment is aligned to your goals and financial needs.

Ready to start saving for your future?

We have 2 types of tax-free accounts: the Tax-Free investment account and the Tax-Free Call investment account.

With the Tax-Free investment account, you can start investing in the stock market through exchange-traded funds (ETF) for as little as R250. This account gives you access to over 250 JSE shares and ETFs on an ad-hoc or recurring basis, and you can buy or sell orders into the market at any time during a JSE trading day. You have the flexibility to decide whether you would like to have your profits paid to your bank account or top up your next purchase.

The Tax-Free Call investment account requires an opening deposit of R250, and you can invest up to R36 000 per year with monthly or occasional deposits. This account also gives you the freedom and flexibility to access your money whenever you need to, without giving notice. Interest is calculated daily, and you could earn up to 3.5% interest on your investment.

^{*Terms and conditions apply. Opening a TFSA in the name of your child will use part of their tax-free allowance. Money withdrawn can only be paid out into a bank account in their name. You will also need to be aware of donations tax, if applicable.}

^{Disclaimer: This article is solely intended for information. It does not constitute financial, tax or investment advice or recommendation. Please speak to a financial advisor or registered financial professional before making any financial decision(s).}

^{Standard Bank, its subsidiaries or holding company, or any subsidiary of the holding company and all of its subsidiaries make no warranties or representations (implied or otherwise) as to the accuracy, completeness or fitness for purpose of the information provided in this article or that it is free from errors or omissions.}