South Africa’s best savings interest rates

Counting cents

Last updated 11 June 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.

8) Investec

Period [years]125
R10 0004.25%4.25%4.25%
R100 0007.78%7.9%8.25%
R1 000 0007.78%7.9%8.25%

Investec offers an average interest rate of 6.76%. 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 large investments, they would have ranked 4th. However, not everyone has R100 000 to invest.

7) FNB

Period [years]125
R10 0007.30%7.35%7.95%
R100 0007.30%7.35%7.95%
R1 000 0007.45%7.50%8.10%

The average yield in a fixed deposit account with FNB is 7.58%. 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) Standard bank

Period [years]125
R10 0007.40%7.60%8.00%
R100 0007.40%7.60%8.00%

Standard bank is offering decent fixed deposit rates that range between 7.40% and 8.00%. 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 They do not quote interest on investments larger than R100 000, which is calculated when you invest.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 8.46% if you invested R1 million.

5) Absa

Period [years]125
R10 0007.30%7.30%8.10%
R100 0007.80%7.8%8.50%
R1 000 0007.80%7.80%8.50%

Absa offers decent interest rates of between 7.3% and 8.5%, averaging 7.88%. 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.

4) Nedbank

Period [years]125
R10 0007.76%7.03%8.56%
R100 0008.19%8.18%8.63%
R1 000 0008.19%8.35%10.39%

Nedbank has a good fixed deposit return of between 7.14% and 10.39%, averaging 8.36%. 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 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.

3) Capitec

Period [years]125
R10 0007.66%7.98%8.57%
R100 0008.25%8.52%9.16%
R1 000 0008.25%8.52%9.16%

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 8.45%, which is good compared to other banks.

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 000
10%
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.

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. For this, the Tymebank account should be a good option, since the notice period is only 10 days.

Be safe out there,

Hendrik

Quote of the week

“If all the economists were laid end to end, they would not reach a conclusion" – George Bernard Shaw Click To Tweet

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.

Lastly, if you want to be bombarded with emails known as the newsletter I send out once a month (if I remember), please subscribe on the right. There are also links to my Twitter and Facebook pages on the right (or at the bottom if you are browsing with a phone). All information is based on my opinion and you can read more about this in the legal disclaimer.

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?

  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.

Leave a Reply

Your email address will not be published. Required fields are marked *