There are various investment instruments which fall under the tax free savings savings of which ETF’s and Unit trusts are arguably the most significant. The funds that qualify under tax free savings cannot charge performance fees, only a flat fee, so if you are invested in ETF’s or unit trusts, check the fee structure and contact your Investment adviser for the best options to take advantage of the tax free savings.

How tax free savings works 

Essentially Tax free savings are the opposite of traditional retirement investments. With tax free savings you are able to invest up to a certain maximum of after tax money, but once that money is in the tax free savings account it will not attract interest at all. This includes, interest, capital gain or any dividends. The current maximum is R30 000/annum with a total maximum of R500 000

Who should invest in Tax free savings

The younger you are the better advantage you will be able to take of these tax free accounts or anyone with a good few years of investing left in them (20 plus years). We all know the power of compounding interest and in a tax free environment there will be a literal explosion in real term returns.

The best way to make use of the tax free savings is to add it to your current retirement savings and not reduce your contributions to RA’s or pension funds.

Perhaps one of the most significant differences to any other savings account, the money in the account is accessible to you at any time without restriction or notice period.

Investing for retirement is always a complex decision making process that should be discussed with an accredited financial adviser and reviewed on a regular basis.