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Best tax-free investment accounts in South Africa right now

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Did you know that some investments can be taxed up to 45% in South Africa?

Yes. It’s absurd. We agree.

Luckily, there are ways to invest without paying any tax. Yup. 0% tax. 

How? With tax-free investments and tax-free savings accounts.

Here’s what you need to know.

 

Tax-free investment & savings in South Africa

Tax-free investment accounts and tax-free savings accounts, or TFIAs and TFSAs, are great ways to save. The same rules apply to each account, and the benefit after 10, 20, 30, or 40 years of generating interest can be huge.

Let’s start with a definition, then look at differences, and explore the best tax-free accounts in South Africa so you can start investing.

 

What is a tax-free investment account?

A tax-free investment account (TFIA), more commonly referred to as a tax-free savings account (TFSA), allows South Africans to invest without paying tax on the returns. South Africans can invest or save up to R36,000 per year, up to a lifetime limit of R500,000. These accounts encourage long-term savings by offering tax benefits on interest, dividends, and capital gains.

By the way… SARS sets the limits and updates them over time.

 

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What is the difference between tax-free investments and tax-free savings accounts?

Though people use both terms to describe the same thing, there is a key difference between the two. Tax-free investment accounts (TFIAs) and tax-free savings accounts (TFSAs) both offer tax benefits, but have different structures and uses.

Tax-free investment accounts (TFIAs): Include a range of investment products like unit trusts, ETFs, and retail savings bonds, making them suitable for those seeking higher returns through diversified investments.

Tax-free savings accounts (TFSAs): These are typically simpler savings products offered by banks. Like savings accounts or fixed deposit accounts. (Check out: How tax-free savings accounts work.)

So, tax-free investment accounts could earn more interest and are typically more risky. While tax-free savings accounts are simpler, more predictable, and low-risk.

 

Types of tax-free investment & savings

Getting familiar with the different types of tax-free investment options can help you get higher returns and manage your risk. There are several types of accounts including unit trusts, ETFs, savings accounts, and fixed deposits. Each type earns interest in a different way or invests in other underlying assets.

Take a second to learn about the different types so you can decide how you want to invest.

P.S. You may like our post on how to invest money in South Africa, it explores these options in more detail.

 

Types of tax-free investment accounts

  • Unit trusts and mutual funds: Also known as collective investment schemes, these funds pool money from many investors to buy a diversified portfolio of assets.
  • Exchange traded funds (ETFs): These funds are traded on stock exchanges and typically track an index, commodity, or basket of assets. ETFs provide a cost-effective way to invest in a mix of things.

 

Types of tax-free savings accounts

  • Savings accounts: These offer a simple way to earn interest on your deposits without any tax implications.
  • Fixed deposits: These accounts lock in your money for a set period in exchange for a higher interest rate, all tax-free.

 

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Best tax-free investment & savings accounts in South Africa

Choosing the best tax-free accounts can maximize your savings and investment returns. In no particular order, here are some of the best options to choose from.

Best tax-free investment accounts

  • EasyEquities: Allows investment in stocks or ETFs with low fees, providing potential for higher returns. The platform has a dedicated TFSA account section which is really cool.
  • Allan Gray: Offers unit trusts ideal for long-term investment.
  • Ninety One: Provides a variety of funds for different risk profiles.
  • Fedgroup: Offers a fixed deposit investment with guaranteed returns.
  • Satrix: Simple platform for investing in ETFs or Unit trusts—with dedicated tax-free options.
  • Coronation: Known for strong performance and a variety of fund options.
  • Alex Forbes: Provides low-cost investments with a focus on long-term growth.
  • Sygnia: Offers a range of ETFs and unit trusts with competitive fees.
  • Old Mutual: Offers diverse investment options for people with different risk appetites.

 

Best tax-free savings accounts

 

Tax-free savings accounts use savings accounts and fixed deposits to generate interest. Each bank and service provider has its own rates, and these rates update regularly.

It’s important to remember that tax-free investment works better over long periods of time. The long your investment grows, the more money you make.

So…

Be careful with fixed deposits and savings accounts. If you withdraw the money then that’s it. It counts against your limits forever, and it won’t grow any further. 

Check out the tax-free savings account rules (by SARS) for a refresher before you get started.

 

In summary

Using tax-free investments to save and invest, especially for the long term is a great strategy. 

In fact, most South Africans could benefit from saving the entire R36,000 every year till they reach a total of R500,000 as soon as they can. That way the interest will have years to build up. And none of it will be taxed.

There are different types of accounts, and you don’t have to use one over the other. You can mix it up if you want. Do what works best for you.

Tax-free investment accounts and tax-free savings accounts are powerful tools to maximize your savings and investment returns. By choosing the right account, you can take full advantage of the tax benefits and grow your wealth efficiently.

If you want to talk to someone about managing your debt, we can help. Try our online assessment at My Debt Hero to see if you qualify to reduce your debt.

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