South Africa’s best savings interest rates

Counting cents

Last updated 02 September 2019.

When we invest money in cash products at a bank, the bank loans 8 to 13 times that amount to other people. This is either as home loans, car loans, business loans or short-term debt, like credit cards. They simply produce this money out of thin air. This is called fractional reserve banking, which sounds like a scam, but is perfectly legal.

If we invest R100 with a bank, they lend around R1 000 to other customers. Depending on whether it is home, car or personal loans, banks earn between 10% and 20% interest on the money they loan us. At an average of 15%, the bank is earning R150 a year on your R100 investment. Assuming you earn 10% interest, they pay you R10 of the R150 they got for their effort.

However, with this income comes a lot of risks. People default on loans. Although the banks try their best to recover this money with auctions, they still lose money on some loans. Typical default rates range between 2% and 8% for South African banks, depending on the vetting process and type of loan. Knowing all this, let’s have a look at the best savings interest rates.

9) Investec

Period [years]125
R10 0004.00%4.00%4.00%
R100 0007.80%7.80%7.80%
R1 000 0007.80%7.80%7.80%

Investec offers an average interest rate of 6.53%. They do not allow fixed deposit investments of less than R100 000. Therefore, if you wanted to invest less than this, you would have to keep it in a cash management account that only grows by prime minus 6%. To be fair, if their offer was evaluated solely based on the larger investments, they would have ranked 6th. However, not everyone has R100 000 to invest.

8) Standard bank

Period [years]125
R10 0006.74%7.19%7.66%
R100 0006.74%7.19%7.66%

Standard bank is offering decent fixed deposit rates that range between 6.74% and 7.66%. You get an extra return of 0.15% if you invest via the online platform (which I’ve included in the figures). They do not quote interest on investments larger than R100 000, which is calculated when you invest. I assume it will be higher than 7.66% if you invested R1 million.

7) FNB

Period [years]125
R10 0007.00%7.05%7.65%
R100 0007.00%7.05%7.55%
R1 000 0007.15%7.20%7.80%

The average yield in a fixed deposit account with FNB is 7.28%. This is still inflation-beating returns and will bring some stability with decent growth. However, this is definitely not retiring in the Maldives money. Neither is the returns from other banks, but they might at least get you a Mauritius retirement.

6) Absa

Period [years]125
R10 0007.10%7.25%8.10%
R100 0007.60%7.75%8.50%
R1 000 0007.60%7.75%8.50%

Absa offers decent interest rates of between 7.1% and 8.5%, averaging 7.79%. There is one thing that makes the Absa offer extra attractive. If you remain invested for the entire 5-year period and opt to take your interest on expiry, the return increases to 10.5% per year. That is a massive improvement from 8.5%. So, if you can afford to go without the invested money for 5 years, it will pay off.

5) Capitec

Period [years]125
R10 0007.44%7.55%8.19%
R100 0007.92%8.14%8.89%
R1 000 0007.92%8.14%8.89%

Capitec is probably my favourite cash investment option. They have a low loan default rate and they are only issuing loans to the value of 8 times the invested capital. In other words, they choose to err on the side of safety. The average return on investment in their fixed deposit accounts is 8.12%, which is good compared to other banks.

4) Nedbank

Period [years]125
R10 0007.33%7.09%8.63%
R100 0007.87%7.85%9.72%
R1 000 0007.87%8.12%9.87%

Nedbank has a good fixed deposit return of between 7.09% and 9.87%, averaging 8.26%. I don’t know why their interest rates on investments of two years are lower than interest rates over one year. It might be worth investing your money for one year and then reinvesting it for another year if your investment horizon is two years.

The return on the 5-year, R1 million investment is extremely good at 9.87%. However, let’s face it, few people have a million rand to invest and the ones that do, will know better than to invest everything in cash.

3) Finbond

Period [years]125
R100 0008.25%8.25%9.35%
R1 000 0008.25%8.25%9.35%

A new addition to the list is the offering by Finbond. They offer decent returns of up to 9.35%. If you can invest for 67 months, this return is increased further to 9.65%. This is an average return of 8.62%. The only drawback is that you will require at least R100 000 to invest in this account.

2) African Bank

Period [years]125
R10 0008.80%9.20%10.75%
R100 0008.80%9.20%10.75%
R1 000 0008.80%9.20%10.75%

African Bank has the best cash investment returns, by far. The average return is 9.58%. Even their worst interest rate outperforms most of the other banks. You can even invest with as little as R500. Has African Bank gone bust before? Yes. Will they go bust again? Probably not. Am I willing to risk it? Unfortunately not.

1) Tymebank

Period [years]125
R10 00010%10%10%
R100 00010%10%10%

An interesting new offering comes from Tymebank. They have an interest rate that scales from 6% to 9% over a three-month period. If you then give 10 days’ notice when you extract the money, the interest jumps to 10%. This means that you can earn a decent interest rate, even if your investment horizon is relatively short. This makes Tymebank a great option for storing your emergency fund. The only drawback, however, is that you can only invest up to R100 000.

Conclusion

Most of the interest rates offered by the banks are slightly down since the interest rate decrease. One other savings account I want to mention is the offer by Fedgroup. I did not include them in the list as their offering is only applicable to an investment horizon of 5 years. They offer an effective rate over the 5 year period of 11.3%, which according to my calculations is an annual rate of 9.37%. So, consider them as well if you are in it for the long haul.

Why would we invest in cash products, knowing that shares return more than 12% and cash only about 10%? Well, the return from cash products is consistent. During bear markets, the returns from cash investments will continue growing, bringing some stability to your portfolio. This is critical during retirement. If your investment horizon is less than 2 years, this might make sense as well. The volatility of shares might work against you in the short term. You can read more about managing this risk here.

I am not investing large amounts in cash products, because I have a home loan where I can save the money at an interest rate of 10%. I use a savings account to earn some interest on my salary, as discussed in the article 8 ways to reduce bank charges.

Fixed deposits cannot be used for your emergency fund. You will need a savings account with a notice period of a month or less for that (or a home loan where you can park the cash). For this, the Tymebank account should be a good option, since the notice period is only 10 days.

Be safe out there,

Hendrik

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Endnote

Thank you for reading to the end. Apparently, the average person spends 8 seconds on a page, so you are special. If you have any suggestions, feel free to drop me a mail on the contact page. If I missed anything or you have questions, don’t hesitate to comment below. I might even notice it and respond. If you enjoyed this article and really want to throw me a bone, please share it.

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Comments

  1. Pingback: 8 ways to reduce bank charges - Tigers on a Golden Leash

    1. Post
      Author
      Hendrik Brand

      Hey Mike, I’m glad you brought them up. I did check out their interest rates while writing the post but wasn’t convinced that they are established enough, although I like their offering. They have interest rates that scale from 6% to 9% over 90 days. The maximum interest is 10% if you invest for longer than 90 days and give 10 days notice when extracting the funds. You can invest up to R100 000 with them. If anyone has experience with Tymebank feel free to comment.

  2. Lian

    Informative as always – thanks Hendrik.

    Although providing a great service, Investec also has the highest banking fees (especially compared to Capitec) – worsening the case for the #7 spot.

    Thanks for adding the info on Tyme, will definitely look into them.

    Keep posting please!

    1. Post
      Author
      Hendrik Brand

      Hey Lian,

      I have also added Tymebank to the blog for comparison.

      Thank you for the continued support.

        1. Post
          Author
          Hendrik Brand

          Hey Lian,

          I very nearly did open one. Was weighing up Capitec and Tyme Bank and ended up choosing Capitec, simply because their account is interest bearing. This brings down their fees to just below Tyme Bank.

          However, I have heard a lot of good things. A few glitches here and there with setting up accounts, but that is to be expected from a new offering.

          Has anyone else made the switch?

          1. Julie

            Any tips on tax free investments – I have 4 with investec that are currently offering 7.45% for the next 12 months… I need to decide quite quickly … your thoughts?

          2. Post
            Author
  3. Hannah

    Hello Hendrik
    I am South African but have money invested in the UK. Unfortunately, as a non-resident I can no longer invest it there in a fixed-term interest bearing account. South African banks offer good returns on fixed term – I know you don’t have a crystal ball, but do you think bringing that money back into the country would be a stupid idea? I took it out years ago because I expected our currency to fall drastically, but it hasn’t. I am retired, so can’t afford to take any more chances.

    1. Post
      Author
      Hendrik Brand

      Hey Hannah,

      As you said, no crystal ball here. In theory, our currency should devalue against the pound by about 2.5% per year (the difference in inflation rates). So should you continue to invest the money in the UK in a fixed-term interest-bearing account, it should at least give you 7.5% to compare with the 10% you can get in SA. Then there is also the question of where you want to spend the money. If you are heading there, money in the UK is a good idea. If you need to bring it back to SA to spend it anyway, then it looks like they are forcing your hand to start doing it now. You will, however, take the currency conversion knock which you should look at minimising.

      Note that I’m not a financial advisor and can therefore only offer my honest opinion.

  4. Stephenson Tapera

    Dear Hendrik

    How current are your rates above, can I use them for my current analysis today (11 June 2019). Otherwise, thank you for the info and great analysis of the major banks.

    1. Post
      Author
      Hendrik Brand

      Hey Stephenson,

      Thank you for the positive feedback. The original article was published on 22 February. Since then the interest rates have come down a bit. I have updated all the figures for you to use in your analysis. I have also added the last updated date at the start of the article for future reference. I hope this helps.

      Thank you for reading.

  5. Pingback: Risk identification in your portfolio - Tigers on a Golden Leash

  6. Christopher Jones

    Hi Hendrik

    Interesting blog post.

    One question. you say for Nedbank, “The return on the 5-year, R1 million investment is extremely good at 10.39%. However, let’s face it, few people have a million rand to invest and the ones that do, will know better than to invest everything in cash.”

    Besides the bank going bust, which is unlikely for a Moody’s rated bank such as Nedbank. What are the risks with putting 1 million in a 5 year fixed term deposit account? Compared to other investment avenues that would offer similar returns?

    Cheers
    Chris

    1. Post
      Author
      Hendrik Brand

      Hey Christopher,

      I see three risks in investing, volatility, long-term underperformance and the risk of losing everything. In a bank, the returns are predictable and like you mentioned the risk of Nedbank going bust is not a massive concern. In terms of historic long-term performance, banks underperform diversified index investing (although during the last 5 years the opposite was true for local shares).

      The tax on cash investments is also more than the tax on capital gains tax (depending on what you earn and when you cash out your shares). So make sure that you are aware of what you will pay before investing. I wrote a simple calculator for this that you can find in the sheets section of my blog.

      Thanks for reading.

  7. Dallas Conn

    How about crypto currencies, especially Bitcoin in your investment portfolio ? Lots of facts surrounding bitcoin, but the 2 I like most…..Bitcoin has made a higher low every year since its inception. If you invested R 1000 in Gold , Apple and Btc…..how much would you have today ?

    Gold R1350
    Apple R7700
    Bitcoin R33 000 000

    1. Post
      Author
      Hendrik Brand

      Hey Dallas,

      I don’t want this thread to take over the conversation about fixed term cash investments, so I’ll keep my reply short. Yes, some people made a lot of money with bitcoin and a lot of people lost money. There is scope for high volatility investments in each portfolio, but your risk should also be minimised and it should not be the majority of your portfolio. I am by no means an authority on bitcoins, but the returns you mentioned are reliant on when you bought each investment. So, we should be careful about recommending something where we are not sure what the future holds.

      I might do a post about the topic in the future as there is a lot of interest. Thanks for reading.

  8. Les Naylor

    Morning a very informative site am trying to get all my ducks in a row having retired recently and your articles and comments are really helpful thank you for keeping it simple.

    1. Post
      Author
      Hendrik Brand

      Thank you Les,

      I really appreciate the feedback. Enjoy the retirement and thank you for reading.

  9. Lian

    Hi Hendrik,

    It’s been a while. Some feedback on Tyme:

    My interest rate is now running at 10% after 90 days – as per their policy. They update interest daily and their app and website are both very intuitive. So far, still good.

    1. Post
      Author
    1. Post
      Author
  10. Bradley ponen

    Hi
    Great advice.

    At work everyone seems to be going with Allen gray. Can you please do a comparison for me. I’m still leaning towards capitec for my investment. Thanks again

    1. Post
      Author
      Hendrik Brand

      Hey Bradley,

      Sorry for the delayed response, today was a bit hectic. I couldn’t find any fixed interest rate options from Allan Gray. They mostly offer Unit Trusts and the closest thing they have will probably be the Money Market Fund. This delivered about 7.5% interest over the last 5 years. I hope this answers your question.

      Thank you for reading.

  11. Anwar

    Hi,

    Thank you for a great article.
    You mentioned that “because I have a home loan where I can save the money at an interest rate of 10%.”

    Please explain how you do this.

    1. Post
      Author
      Hendrik Brand

      Thank you Anwar,

      The bank charges you interest on the outstanding amount of your home loan. If you pay down more than the required amount, the outstanding amount is reduced and as a result, the interest on this amount. So, if you owe R1 mil, the interest per year will be R100 k (at an interest rate of 10%). If you paid down R200 k, you owe R800 k and the yearly interest is reduced to R80 k. This saves you R20 k as a result of paying down R200 k. This is similar to earning R20 k on an investment of R200 k.

      I hope this makes sense.

    1. Post
      Author
      Hendrik Brand

      Hi Jerome,

      Once your time horizon is 5 years or longer, I would start looking at investing in ETFs. These are sold through online brokers and can even be done in the tax-free space.

  12. Pieter

    Hi Hendrik,

    I’m a SA citizen living in Europe. I’m looking to invest about R3m in a fixed savings account. I am interested in Africa Bank seeing that they are giving the best rates for fixed amounts over a 5 year period. What kind of taxes could I face and would you agree with this move or would you suggest some other investment rather?

    1. Post
      Author
      Hendrik Brand

      Hi Pieter,

      The tax on cash investments is classified as income tax, with an exclusion of R23 800. So, on R3 mil you would pay income tax on approximately R280 000. Depending on whether you have any other income in South Africa and how much time you spend in Europe vs South Africa, the tax on this can be significant. Another concern is that African Bank has gone bust twice now and if I remember correctly, only the first R100 000 for each investor was refunded.

      Since your investment horizon is 5 years, my opinion is to look into well-diversified ETFs. I suggest you read my article on risk identification. You can also speak to an independent financial advisor if you are still uncertain about the way forward.

      Thank you for reading.

  13. Pieter

    Hi Hendrik,

    I have been living and working in Europe for the last 20 years and intend to keep doing this till my pension (another 25 odd years), so where and how will I be taxed if I invested R3mil in let’s say a long term savings account? You also mentioned African Bank going bust twice in the past, but would Nedbank for instance be a good alternative for fixed savings for at least 10 years. I am looking for FI when I am 55, thus giving me 12 years to reach that goal. We have a plot in SA but I am looking to sell that too since it costs me money instead of earning me money. Please keep in mind that I am a SA citizen but work and live abroad and thus will not earn an income in SA by performing “labour”. Only once I have reached FI I might return to SA.

    1. Post
      Author
      Hendrik Brand

      So, if you earned 10% on the R3 mil, that will obviously be R300 k interest. If you are a resident the following applies: You get a tax break of R23 800, so you will pay income tax on R276 200. The tax you pay on this is R41 924 as this is your only income. If you are a non-resident, you are exempt from tax but a withholding tax of 15% might still apply. You can read all the rules here: https://www.sars.gov.za/ClientSegments/Individuals/Tax-Stages/Tax-and-Non-Residents/Pages/default.aspx.

      I would rather put money in Nedbank than African bank, but to be honest, I haven’t looked at the finances of either lately and do not know how this will change in the future. Also note that I am not a financial advisor and one would probably strongly advise you to look at putting some money in ETFs as well.

  14. Pingback: The cheapest bank accounts in South Africa - Tigers on a Golden Leash

  15. Craven Walton

    Very interesting topic but my topic of concern is : Monthly compounding interest rate vs Annual compounding interest rate.

    I want to invest 100k n see it grow monthly, which bank offers the best rate?

    1. Post
      Author
      Hendrik Brand

      Hey Craven,

      As you implied, these are all quoted as effective annual interest rates. You can convert is to monthly interest rates by using the following formula:

      Annual% = ((1+Monthly%/12)^12)-1.

      What you will see when applying this, is that the monthly compounded and effective annual interest rates are directly proportional. In other words, the account with the highest effective annual rate will also have the highest monthly compounded rate. I hope this answers your question.

      Thank you for reading.

  16. Pieter Hattingh

    Hi Hendrik,

    Thank you for valuable information!

    Just for interest sake, Finbond Mutual bank is offering 11.5% nominal interest on R1m or more on a fixed deposit for 5 years. Offer expires today. But ja… not sure I would like to risk my hard earn money there!

    Would you recommend any specific type within EFTs?

    Any specific source where I can get more info on SA TAX calculations?

    All the Best
    Pieter

    1. Post
      Author
      Hendrik Brand

      Hi Pieter,

      With ETFs the aim is to buy the market. For me, that means index investing.

      Decide what percentage of your funds you want in the local market or in the international market. Then you can look at the top 40 funds or global funds. Good examples of these providers are Satrix, Coreshares, Ashburton, Absa etc. I quite like the Satrix top 40, Satrix World and Ashburton Global 1200. The best funds are the ones that are cheap and well-diversified.

      For tax info you can always go directly to the source, the SARS website or alternatively, you can calculate it with the handy calculators by Taxtim (https://tigersonagoldenleash.co.za/taxtim-calculators).

      Thank you for reading.

    1. Post
      Author
      Hendrik Brand

      Hi Carika,

      If you invested the money with Finbond for 5 years, you’ll earn interest of 9.35%. This is good but you will need at least R100k. In terms of whether you should do it, the risk with cash investments lies in the financial health of the institution. You can read more about this in my article on risk management (https://tigersonagoldenleash.co.za/2019/06/17/risk-identification-in-your-portfolio/).

      I will add the interest rates for Finbond and Fedgroup to the next update of this article.

      Thanks for reading.

  17. AJ Nel

    Having done a very basic comparison and def fearing investing funds in the new banks (Thyme and Capitec) and excluding African Bank (for the same reason you did), it would appear that Sasfin is the best option for a one year fixed deposit of just less than one million?

    1. Post
      Author
      Hendrik Brand

      Hey AJ,

      I wouldn’t necessarily discount Capitec simply based on age (turning 20 this year). The Sasfin offering does look promising though. I will include them in the next iteration as well.

      Thanks for reading.

    1. Post
      Author
    1. Post
      Author
      Hendrik Brand

      Hey Cathrine,

      In my opinion the risk is not necessarily higher than with other banks. I am sceptic about the fact that they have gone bust before, but this could also mean that they have learned from their mistakes and issued better loans.

  18. Mike Sohan

    Need to know more about African Bank, like, how stable, reliable, trustworthy, would they fold anytime soon, or are they good to business.
    Regards

    1. Post
      Author
      Hendrik Brand

      Hey Mike,

      It looks like their financial position is improving. The last time they folded it was because of the poor quality of their loans. I assume they will try to sort this out this time around. But I honestly can’t tell you for sure that they won’t fail again. The excellent interest they offer requires an investment of 5 years and we can’t look that far into the future.

  19. ringo

    Hi

    I have R2.6 million to invest for a one year period at a time to live off the interest monthly. I am currently not working. Which bank will give the best interest on either fixed deposit or savings for a year at a time investment as I may need some cash whenever there is an emergency. Please let me know what tax I need to pay as well so I can keep that money aside for the taxman.

    Thank you for your assistance and advice

    1. Post
      Author
      Hendrik Brand

      Hey Ringo,

      It looks like the best one-year return is from African bank. However, I would not put everything in one bank to avoid the risk of that bank going bust (irrespective of which bank you end up choosing).

      You will be paying income tax on anything over R23 800. So, this will depend on what other income you are getting. Have a look at the tax brackets on the SARS website.

      Thank you for reading.

  20. Post
    Author
    Hendrik Brand

    In response to Julie’s question,

    Sorry, we ran out of space at the top. The question is regarding cash investments in a tax-free environment.

    Generally, it is not a good idea to do cash investments in a tax-free account. This is because cash investments already have a tax break of R25 800 per year. So if you invest in a tax-free Investec account paying 7.45%, you will need to invest for 10 years before you get an additional tax advantage. This is since the interest on the first R350k would have been tax-free in a regular account.

    For this reason, people tend to prefer using the tax-free account to buy shares, more specifically well-diversified index exchange-traded funds or unit trusts. Just have a look at the fees when investing.

  21. Grosso

    Greetings Hendrick

    You might have touched on this before.

    On a high interest bearing savings account with a minimum of 100k for a year or two. Is it possible to access your funds before maturity of the duration of the account, and if so, what is the rule of thumb liquidity period or notice?

    I am aware, one cannot necessarily use these savings accounts as emergency funds.

    One follow up question also. Which savings accounts would you recommend to use for an emergency fund. A comparison of interest rates would be highly appreciated, esp those that offset the inflationary pressures.

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