Understanding savings accounts: A smart way to grow your money
Explore the benefits, types, and key features of savings accounts to help you manage your finances and reach your financial goals.
A savings account is a type of deposit account designed for the purpose of saving money. It is a simple and secure way for individuals to store and grow their money while keeping it easily accessible.
Savings accounts are an important tool in optimising your personal financial management, helping you save for short-term and long-term goals, build an emergency fund, or set money aside for future expenses, with a higher interest rate than what you’d typically receive through a current / checking account.
There are also different types of savings accounts to cater for these varying savings goals, including:
Enjoy easy and immediate access to your funds while still benefiting from a competitive rate. Choose from a prime-linked or money-market linked rate.
Notice accounts give you good returns and flexibility to suit your needs. Choose from a prime-linked or money market-linked rate.
Get the best interest rates when you lock your savings away for a fixed term. A choice of fixed, prime-linked and tax-free savings.
Does your money grow in a savings account?
Yes, there is potential for growth through the accrual of interest over the savings period. The returns you see depend on the agreed-upon interest rate, savings period, and initial capital amount deposited.
How does a savings account work?
A savings account is a simple and straightforward financial product that allows you to save and earn interest on your deposited money.
Here's how a savings account typically works:
- Account opening: To open a savings account in South Africa, you will need a valid South African ID or passport and proof of residence.
- Deposit money: You can deposit money into your savings account through cash deposits, electronic funds transfers or mobile banking application.
- Interest earnings: Your savings account will earn interest on the money you have deposited. The interest rate may fixed upfront, or tied to the South African Reserve Bank’s repo rate. Interest is typically calculated daily and paid out monthly or annually depending on the savings account you choose.
- Access to funds: Once your savings period has matured, you can transfer this money from your account through online banking, ATM withdrawals, or elect to automatically deposited into your current account on maturity.
- Statements and monitoring: You’ll receive regular statements showing your account activity, including deposits, withdrawals, and interest earned.
- Taxation: In South Africa, the interest you earn on your savings account is subject to income tax, except the tax-free savings account, which offers exemptions from capital gains tax and dividend tax, up to certain annual limits.
Savings account interest is typically calculated using one of two methods: simple interest or compound interest. The method used can significantly impact the total amount of interest you earn over time, so make sure you select the account with the type of interest that best meets your savings goals.
Compound interest is calculated as follows:
A = P * (1 + (r/n))^(n*t)
- A represents the future value of the account, including both principal and interest
- P is the principal amount
- r is the annual interest rate (expressed as a decimal)
- n is the number of times interest is compounded per year
- t is the time the money is deposited in years
Simple interest is calculated as follows:
I = P x r x t
- I represents the interest earned
- P is the principal amount (the initial deposit amount)
- r is the annual interest rate (expressed as a decimal)
- t is the time the money is deposited in years
What is a high-yield savings account?
High-yield savings accounts reward you with a higher-than-average interest rate on your savings, mainly by holding your principal amount for longer, fixed terms.
Can you withdraw money from a savings account?
Call and money market accounts allow you to you withdraw money at any time. Withdrawing your savings from a notice account or fixed term deposit account before the stipulated period has ended will incur a penalty fee.
Are savings accounts taxable?
Savings accounts are taxable in South Africa, unless you elect to save in a tax-free savings account (TFSA).
