The evolution of South Africa’s savings culture

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The recent past has seen rapid globalisation, creating a connected economy that is subject to the vagaries of economic swings. This has dramatically influenced South Africa’s savings culture over the years and reinforced the critical importance of rainy-day savings.

While we do see an increase in amounts saved over the years, this growth is largely attributed to wealthier individuals who are better positioned to continue growing their money through savings and investments – even during times of economic downturn.

The number of middle-income South Africans who enter the world of savings has, however, slowed. In an economy that is declining, with rising unemployment levels, and businesses feeling the impact of the COVID-19 lockdown, most people are feeling the financial strain.

There are insurance packages that protect from loss of income, but there is also protection in the form of savings products, which are largely under-utilized. The common misconception is that you need a lot of money to start saving; that is not the case – it can be as little as R50. There are savings products geared for every type of person.

Society schemes remain popular but are evolving

Stokvels continue to be an important safety net for many South Africans. This vehicle remains popular and is now attracting younger savers and aspiring investors who are realising the power of pooling funds for investment. While the stokvel mechanism remains the same; its purpose is evolving – people are realising that it can be used to make bigger investments in property and other asset classes, that could not be achieved alone, to create alternative revenue streams.

TFSA the vehicle of choice for long-term savings

Another savings vehicle that has gained popularity among South Africans is the tax-free savings account (TFSA). Launched by the government in 2015 with the aim of incentivizing individuals to save more, the TFSA allows for individuals to contribute R36 000 per annum or R500 000 over their lifetime. Any contribution made to the TFSA is exempt from tax on interest, dividends, and capital gains.

If any funds are withdrawn from the TFSA, it is important to remember that they can’t be put back into the savings vehicle. This helps to get individuals to stay invested for the long term. It is also worth noting that should a saver exceed the contribution limits; they will be penalized at 40% on contributions over the allowed limit.

The importance of savings to a country cannot be understated. Economic growth is tied to investment – from both locals and foreigners – in businesses or other assets. As foreign direct investment is hard to come by these days, there is an increased reliance on investment from households to boost economic growth.

While many find it challenging to save in case unexpected expenses arise, the reality is that life is uncertain; nothing has demonstrated that better than the current situation we are in. This has created a shift to being careful and spending on needs rather than wants.

Demand for short-term, easy access savings vehicles

Standard Bank has recently seen a demand for savings products that offer attractive interest rates and easy access to the funds, should the need arise. Standard Bank’s Flexi Advantage account is a term investment which also allows partial redemption should the need arise, which means that you can withdraw up to 40% of what you put into the account during the year, while the remainder of the funds are fixed and can’t be touched. The account lets customers access funds at any time and offers competitive interest rates of up to 4.65%.

For those looking for more access to liquidity, the Standard Bank MarketLink acts as a savings product but also allows full transactional capability, so you can transact (with a physical card) if necessary while still earning interest of up to 2.5% on the funds invested.

With a large need among consumers to grow their funds, Standard Bank’s MoneyMarket Select investment account has become one of the bank’s fastest-growing products. The account lets customers invest from R250 000 and enjoy higher returns. Interest rates are variable and are currently sitting at 4.35% for this low-risk account that also allows anytime access to funds.

Graduating from saving to investing

If you are able to save consistently through any of these products and are fortunate enough to not have to dip into those funds, the amount can then be moved into an investment fund through Liberty and Stanlib, that offer higher rewards in the form of returns. These investments are not without risk, but an investment expert can assist in setting up a diversified portfolio for investors that works to offset potential drops.

We try to gain an understanding of our customers' needs – whether they want to save monthly, or contribute a lump sum, for example – and provide them with an understanding of what savings is about, how interest rates work, and help them to access what is relevant and right for their needs.

For more information on the Standard Bank savings products, please visit: https://www.standardbank.co.za/southafrica/personal/products-and-services/bank-with-us/savings-and-i...