The first-time saver’s guide to savings accounts

You don’t need to be an investment banker to know how to save. Saving takes a lot of commitment and sacrifices. We shouldn’t just be tightening our belts when the South African Reserve Bank increases the repo rate.

Due to tough economic times, many are already making sacrifices just to make ends meet. Perhaps saving will be easier in the future when that new job offer surfaces or a pay increase comes your way, but often the extra income is wasted instead of invested:

“Instead of putting this saved money to work, consumers end up spending their savings thereby rendering the whole cost cutting exercise useless,” says Niel Fourie, public policy actuary at the Actuarial Society of South Africa (ASSA).

What is a savings account?

According to First National Bank (FNB), a savings account is a ‘flexible way of saving’. It gives you instant access to your money and can be used on a daily basis.

Capitec Bank’s Global One money management account offers five savings plans linked to one account number. The savings accounts can be varied from a transaction/savings account to a flexible savings account or even a fixed-term savings account – offering various interest rates depending on which account you choose.

So where do you start?

The most obvious place would be the bank. Michael Daniels, head of deposits and payments, Standard Bank, explains the benefits (pros) of opening up a savings account:

1) Saving accounts allow you to develop a decent lump sum which can be transferred to another investment account ensuring that your money grows faster.

2) The earlier you start saving, the less you will have to take out of your full income.

3) Savings enables the customer to become financially disciplined.

4) Having a savings account will assist you when there are emergencies and special goals such as saving for your child’s education.

5) People often underestimate the finances they will need when they retire – a savings account will assist when planning for old age. “We need to dispel the myth that you need to have a lot of money on hand if you want to save. Every little bit, no matter how much, can make a difference,” says Daniels.

The downside to savings accounts:

Although opening a savings account is a good idea, there are some cons worth considering. Certified financial planner Paul Roelofse, points out a few:

1) With most savings accounts a minimum balance is required. With FNB, for example, if you don’t have a minimum balance of R2,000 in your savings account then you will be charged a monthly account fee of R6.

2) Savings accounts don’t earn as much interest as other savings options: “A savings account is punishing when it comes to interest,” says Roelofse. “Compared to a money market account which gives a higher rate of return, interest earned on the minimum required balance of a savings account will be less,” points out Roelofse.

3) With a long term view, without the savings being fixed, capital is eroded by inflation. “The inflation rate is usually higher than the interest offered by the bank,” explains Roelofse.

4) When capital is fixed to secure higher interest rates you usually have to relinquish the convenience of immediate access to your money. “This becomes a problem in emergency situations where you need cash in a hurry,” says Roelofse.

5) Before taking out a savings account it is essential to confirm various bank fees. These costs erode net return. The lower the costs, the more beneficial in the long run.

How can you find money to save?

It’s easy saying that you need to set aside money every month to stick into a savings account or other investment vehicle. But where and how can you free up some extra cash? Fourie from ASSA highlights practical ways on how to save and shows us how one family cut back and saved almost R900:

Capture savings

Once you have paid off all short-term debt such as store accounts, invest your savings immediately: “The long-term reward for putting the saved money to good use is enormous,” concludes Fourie.