Personal Finance 6.4.2017 11:00 am

Tax-free savings explained

Wouldn’t we all like to live in a world where we can get the full return on investments without being taxed on any of the growth we’ve earned?

Well, this is possible! Tax-free investment accounts are an initiative encouraged by government to allow you, as an investor, to grow your money through an investment account.

So, what are tax-free savings, and how can you get in on it?

When you sign up for a tax-free investment account, you won’t be taxed on the growth of your investment, and no tax is payable when you withdraw from this account. In other words, any interest, dividends or capital gains your investment earns will be tax free. It’s an ideal way to save for your goals and access a variety of withdrawal and transfer options.

As an investor, you can only invest a maximum of R33 000 per tax year into this tax-free investment account. The lifetime limit of the account is R500 000, so once it reaches this point (regardless of the time frame) you cannot contribute more.

A tax-free investment is intended to reap supreme returns over the long term, by taking advantage of the non-taxable interest income derived from the investment.

Reasons to sign up for a tax-free investment account

Do you need to save up for a special vacation or overseas trip? Maybe you want to start saving for home renovations or build up a nest egg for your child’s education? These are all great reasons for opening and saving your money in a tax-free investment account.

Tax-free investment accounts provide you with quicker growth than a regular savings account and you don’t have to commit to a specific amount for future contributions. This allows you to save and build on your savings in any way that you see fit. How’s that for flexibility!

The possibility of compound interest

If managed correctly, your tax-free investment account allows you to use compound interest to grow your capital over time. Instead of withdrawing your investment after one year, you can reap the benefits of compound interest by allowing it to continue to grow and by making additional deposits (to a maximum of R500 000 over your lifetime and R33 000 per year). As a result, your investment will earn interest on the principal amount plus the previously accumulated interest.

Who can open up an account?

You qualify to open a tax-free investment account if you are 18 years and older and have an ID or smart card. Minors also qualify under the guardianship of a parent, or guardian. Foreigners can make use of this opportunity if they are residing in South Africa and have a valid passport, proof of residence and a local bank account.

Tax-free savings are empowering individuals to take control of their money and be rewarded for it in return. Whether you’re a student wanting to manage your future student loan payments, a wife wanting to save up to treat your husband to that surprise holiday or just a prospective homeowner saving up for that deposit, a tax-free investment accounts is a great option for you!

Start building on your future prospects today by opening an account where you can save money without losing some of it in the process.

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