The good news is that there are some good options available that can protect your capital while offering interest. Here we unpack the pros and cons of a few.When we think about investing, we typically think about long-term goals such as retirement. But what are the options if you want to invest for a short-term goal of fewer than five years? This could be for a deposit on a home or saving for a holiday or just to diversify your risk.
“You would preferably want to make use of an income fund that has exposure to mostly cash and bonds. These funds normally target a cash plus return and generate both interest and growth.?Growth is taxed in line with capital gains tax , where only 40% of the growth is taxed for individuals and 80% for trusts at the respective marginal tax rate.
Typically, the longer you are prepared to fix your deposit for, the higher the interest rate from the bank will be. For example, on an amount of less than R100 000, Absa would pay a monthly rate of 7.5% for a six-month fixed deposit, but up to 8.25% for a 24-month fixed deposit. You can have as many as 10 different GoalSaves and earn up to 7% interest a year. The catch is you have to switch your salary to TymeBank – it pays to study the terms and conditions of products carefully.If you want to diversify some money away from traditional bank deposits, there are a few non-banking options to consider, including the RSA Retail Bond, the Fedgroup Secured Investment and OUTvest’s Fixed Outcome Endowment.This is a series of bonds with two-, three- and five-year terms.
“If you compare effective rates, then a top-rate taxpayer who has used their entire interest exemption will need to get a five-year fixed deposit to give them 12.5% effective to beat an after-tax endowment rate of 7% per year.”
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