Higher-for-longer interest rates unique opportunity for savvy savers

Although it is clear what the drawbacks are of interest rates remaining higher for longer than we thought, such as slow economic growth because consumers have no disposable income, it does offer a unique opportunity for those of us who can still afford to be savvy savers.

As interest rates continue to hover at elevated levels, with predictions that there will only possibly be gradual decreases by end of the year, it is a good time for savvy savers to reassess and optimise their saving strategies.

“Given the continued high interest rates, but gradually declining inflation, we encourage South Africans to take advantage of this distinctive saving environment that will undoubtedly reward strategic financial thinking.

“Taking the time to do some balanced planning will deliver financial resilience and accelerated savings growth,” says Himal Parbhoo, CEO of FNB Cash Investments.

He says it is important and valuable to take a strategic approach to saving in the high interest rate climate.

“When interest rates are high, it can be tempting to throw all your savings capital into the account that offers the highest growth, but a more nuanced and carefully considered approach is called for, one that balances higher returns with the important need to maintain financial flexibility.”

ALSO READ: Up your savings: the secret of compound interest and the rule of 72

A savings portfolio for savers with different time horizons

Parbhoo says in this environment, the key to building a successful savings strategy is to create a savings portfolio that works harmoniously across different time horizons and meets your unique and varied financial goals.

He says it is about striking the right balance between immediate access to your money if you need it and long-term growth for your future financial security.

“This multifaceted approach is reflected in a range of savings solutions. For short-term needs and emergency access when required, a savings account offers a combination of liquidity, as well as quick access to your cash and steady returns.

“While it may not boast the highest interest rates, it provides the crucial ability to withdraw or transfer your funds immediately, making it an ideal vehicle for emergency savings or short-term financial goals.”

He emphasises that financial security is not just about accumulating wealth for the distant future as it is also about having the right resources available to you at the right time.

A portion of your savings should always be readily accessible, ensuring you are prepared for life’s unexpected events.

However, Parbhoo also highlights that the current high interest environment presents a prime opportunity to maximise long-term growth.

For example, the flexi notice account and fixed deposit options are designed to capitalise on this, offering higher interest rates in exchange for reduced liquidity. These solutions allow savers to truly harness the power of compound interest in a high-rate environment.

ALSO READ: How to automate your savings

Flexi notice account offers a middle ground

The flexi notice account offers a middle ground of competitive rates with a relatively short notice period of 7 or 32 days’ notice for withdrawals, depending on the account you choose.

And if you are one of the lucky ones who can commit funds for longer, the fixed deposit account provides premium rates across various terms, from seven days to five years, with increasing interest rates as you commit your capital for longer periods.

“The optimal strategy involves a combination of these approaches. Diversification is not just for investments, it is just as important for savings.

By spreading your savings across different products, you position yourself to benefit from high interest rates while maintaining the flexibility to adapt to changing personal and economic circumstances,” Parbhoo says.

As South Africa navigates this ongoing high-interest period, consumers are encouraged to adopt a strategic, diversified and holistic savings approach.

In today’s uncertain economic climate, effective saving is about more than just building wealth, it is about achieving financial resilience for both your short and long-term goals.

“As we mark Savings Month, we encourage South Africans to take a fresh look at their savings approach and ensure that they have a well-structured savings portfolio, tailored to their unique needs and goals, so that it can offer protection against day-to-day financial uncertainty while also building long-term prosperity,” Parbhoo says.