Your money is yours, and you should be able to keep it and use it as you wish. So, why not keep it instead of letting it go in the form of taxes. Thankfully, the government has made provisions for you to keep your money – all your money by making smart investments. The tax-free fixed deposit lets you save all your money, without losing any of it in taxes. The best part – this is completely approved by the government. So, you can be sure that a tax-free fixed deposit account is 100% legal and is the government’s way of helping you save your money.
What is a tax-free investment?
In 2015, the Government of South Africa introduced tax free investment . This was done in an endeavour to encourage all citizens to build on their household savings. With a tax-free account, you don’t have to pay any income tax, capital gains tax on the interest or returns that you get from these investments.
There are several types of tax-free investments, including unit trusts, exchange-traded funds (ETFs), linked investment products, retail saving bonds, some endowment policies that are issued by long-term insurers, and fixed deposits. Of all these, fixed deposits are the easiest to start, keep track of, and give you a full return of your money on time – every time.
Tax-free accounts are provided by licensed banks, the National Government, long-term insurers, and co-operative banks. Managers of registered collective schemes (with some exclusions) can provide tax-free accounts as well.
Features of a tax-free investment
- You will not have to pay income, dividends, or capital gains taxes on the returns of a tax-free investment.
- You can have more than one tax free investment, but you will be limited to the annual limits per tax year.
- Parents can invest on behalf of their minor children. The minors will use their own annual/lifetime benefits.
- A tax-free investment account cannot be used for transactions or as a transactional account.
- Only new accounts can qualify as a tax-free account as the idea is to encourage additional savings. So, existing accounts cannot be converted to a tax-free account.
The advantages of a tax-free saving fixed deposit in South Africa
- The biggest advantage of a tax-free saving fixed deposit is that you can grow your wealth completely tax free.
- Your investment returns are not charged for tax.
- A tax saving fixed deposit is risk free.
- Banks offer attractive rates of interest on tax-free fixed deposits. This rate of interest is often higher than the rate of interest that is offered on savings accounts.
- A tax-free fixed deposit is convenient and one of the safest ways of investment.
- A tax-saving fixed deposit is an ideal tool for a long-term investment strategy.
Things to know before you invest in a tax-free investment fixed deposit.
While a tax-free fixed deposit is a superb tax-saving scheme, there are several factors of a tax-saving fixed deposit that one needs to be aware of before investing in this scheme. Complete knowledge on this type of fixed deposit will ensure you avoid making an accidental error in judgement.
- No additional deposits are allowed. Once you make a deposit and the wheel starts turning on your FD, you cannot make changes to it.
- Interest rates that are offered are subject to confirmation when your funds are received by the bank.
- As of today, the legislation allows individuals to make an annual contribution limit of R33 000.00 and a lifetime contribution of R500 000.00 per individual.
- The annual and lifetime limits are applied for you as an individual across all financial institutions and service providers. Which means you cannot make an annual contribution of R33 000.00 in one place and another contribution in another place.
- If you make an excess contribution than the stipulated limit of R33 000.00 for an annual contribution and R500 000.00 for a lifetime contribution, you will be penalized by SARS when you submit your tax returns. The penalty can be as high as 40% of any amount you invest above the maximum.
The benefits and features of the Nedbank Tax-Free Fixed Deposit
If you are looking at starting a completely tax-free fixed deposit with Nedbank, here is a list of benefits and features that you can look forward to.
- Nedbank allows you to start a Nedbank Tax-Free Fixed Deposit account with as little as R1 000.00.
- You can have your interest paid out to you on a monthly, quarterly, half-yearly, or on-maturity-basis – whatever works for you.
- You can keep your tax-free account for as short as 12 months.
- With the tax-free FD, you get a competitive fixed interest rate.
- Your capital and your interest are guaranteed.
- Nedbank does not take a monthly fee or commissions on FDs.
- You can link your tax-free FD account to an electronic banking profile. This gives you the benefit of maintaining your account through your internet banking profile.
What documents will I require to start a Nedbank Tax-Free Fixed Deposit account?
All you require is your ID document and proof of residence if you are a new client.
An ID document can be your South African barcoded ID (valid), passport (if you are a non-resident), or your smart ID card.
The proof of residence document can be a utility bill, phone account, rental invoice – any of these that displays your name as well as your physical address. The proof of residence that you submit must not be older than three months.