Is it a good idea to set up different savings pockets?
Notice accounts can be fee-free
Having multiple savings accounts may seem like an unnecessary duplication of costs, but financial experts say if you have concurrent savings goals like home renovations, buying a new car or a holiday, having several savings channels may be a good idea.
“We always have multiple goals but most times a single income, so it’s a matter of affordability,” Mduduzi Luthuli, investment manager at Luthuli Capital, says.
Having multiple savings accounts makes it easier for you to track the progress of your individual goals, improves your motivation to save and reduces your chances of misspending money, Luthuli says.
Opening numerous savings accounts doesn’t hurt your credit score like applying for a lot of credit at once does, Luthuli says.
Nicolette Mashile, a financial coach at Financial Fitness Gym, says if you choose savings accounts that don’t attract monthly fees or have minimum balance requirements, opening multiple accounts shouldn’t cost you much. But you must do your homework first.
“Generally, what most of the banks have done is take away fees and charges, but you want to have ease of money flowing from one account to another. So, the bank account itself might not have fees but if you are moving money from a Capitec account to an FNB you might get charged that transaction fee,” Mashile says.
FNB offers you a savings account that is free from monthly account charges, and although there is no card linked to the account, you can transfer funds to a cheque account which has a card linked to it to withdraw funds at no fee.
“Further to this we have notice products, that is the 32-day notice and fixed deposit products, that carry no monthly charges, as well as a tax-free cash deposit option,” Himal Parbhoo, the CEO of FNB Cash Investments, says.
Capitec’s transactional account, which attracts a monthly fee of R5, allows you the option of setting up four savings plans which are free of a monthly fee and earn interest at a rate of 4.5% per year on your balances.
“A flexible savings plan allows you to choose your deposit amount and how frequently you make deposits and is great for savings towards short-term goals such as a holiday or new items for your wardrobe,” Capitec says in a statement.
Capitec also offers fixed deposit accounts, if you have a minimum of R10,000, which can you fix for between six months and five years and earn up to 8.25% interest annually. Upon maturity you can opt to ‘refix’ the funds.
TymeBank’s GoalSave allows you to open up to 10 sub accounts earning up to 10% interest annually. If you are able to wait 10 days for your payout, you can earn an interest bonus on top of the interest you’ve already earned.
Other banks also have similar savings products: Nedbank has MyPocket while African Bank has MyWorld. With both of these, you can track your progress weekly or monthly, or you can use a money management app such as Moneysmart or your own bank’s money management tools.
Mashile warns that it’s important to always keep in mind that saving is not the end goal to your financial health and security, but simply a facilitator to you being able to make long-term investments.
“When you are investing, you don’t want to just preserve your R100, you want it to grow and look like R110 in the near future. Saving does not secure you a financial future, it gives you access to investment vehicles that secures your financial future,“ she says.
Your product choice and investment strategy must be aligned to your goals, i.e. depending on your goal, you can invest via a unit trust, tax-free savings account, endowment, retirement annuity or share portfolio.Mduduzi Luthuli, investment manager at Luthuli Capital
The type of investment products you choose depends on a number of factors, Luthuli says, including how much you currently have saved, the type of assets you want to invest in, how much you want to hold in those assets and for how long, liquidity levels, your income requirements, tax implications and fees.
He says your product choice and investment strategy must be aligned to your goals. “Depending on your goal, you can invest via a unit trust, tax-free savings account, endowment, retirement annuity or share portfolio,” Luthuli says.
The banks and financial planners all agree that to get to your financial goals always start with a monthly budget outlining all your income and expenses.
Even though financial planners agree the 50:30:20 budget rule often quoted in the US may not be appropriate for SA, it can be used as a guideline.
According to the 50:30:20 rule you should spend 50% of your after-tax income on fixed costs like your rent or home loan, vehicle repayments and/or other transport costs, insurance, medical cover, education, electricity, water, rates or levies, essential clothing, groceries and security; 30% on your wants, like eating out, entertaining, luxuries and hobbies; and 20% of your income on paying down debt or for saving.
John Manyike, the head of financial education at Old Mutual, says the 50:30:20 rule is just a guideline and there are economic realities you need to consider when you set your own spending rules.
TymeBank’s research shows that 55% of black South Africans are broke three days after payday, indicating that their debt repayment and living expenses are much higher than the 50:30:20 rule suggests they should be, he says.
Manyike says instead of the hard-and-fast rule, commit to getting rid of bad lifestyle debt – debt for things you consume, like food and clothes – and let that and other financial goals inform your spending rules.
For a more secure financial future, Parbhoo suggests you review your debt position and see where you can start managing it better.
For the longer term he advises you make sure that your short- and long-term insurances are up to date, your retirement savings is on track, and that you have a will.