Which tax-free investment account should I consider?

If you are looking for a low-cost tax-free investment account, you should consider the one in the form of an ETF (exchange-traded fund).

Thuli Nkomo CFP®

Thuli Nkomo CFP®

Private Wealth Manager

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Which tax-free investment account should I consider?

I currently have a tax-free fixed deposit account with Investec. This product was taken out in 2016. I have been contributing the maximum allowable annual limit since then. Currently the amount in the fixed deposit is approximately R200 000. It matures in March 2021. Due to the current low interest cycle, I want to convert this tax-free fixed deposit to a tax-free investment account. Can you advise on a suitable product (decent returns with low fees)? Any other considerations in this regard?

Dear reader,

It is good to see that you have been taking advantage of the tax-free savings account since they have been introduced in South Africa.

The decision to transfer the Tax-Free fixed deposit to a Tax-Free Investment Account is a good idea, as Tax Free Savings Account should be utilised as long-term savings vehicle, therefore allocation into a Tax-Free Savings Investment account is more appropriate.

The Tax-Free Fixed deposit account that you are currently exposed to is held in cash. There is currently not tax savings as you are currently not exceeding the R23 800 interest income for person younger than 65 and R34 500 for person older than 65, therefore there is no tax savings.

If you are looking for a low-cost Tax-Free Savings investment Account, then you should consider the one that is in the form of an exchange traded funds (ETF).

  • You do not need a broker to set it up, there are several platforms available online
  • Transferring your Tax-free Account will be easier, as the funds are held in cash, thus not requiring a transfer of instruments
  • You can choose to transfer a portion of your TFSA or the full value.
  • The Tax-free savings account is liquid in nature and there will be penalties on withdrawals
  • This is a passively managed platform; therefore, you have a choice of a wide range of approved EFT that to choose the ETF that is suitable for you.
  • The wide range of approved ETFs offering is both locally and globally.
  • This option is suitable for individual with long term, as investing in ETFs will increase your exposure to risk.
  • The different platform will provide you with information documents, such as the Minimum disclosure document and other documents about the ETF.

When doing the transfer

  • Contact the new provider to provide you with the forms and requirements that will be required to transfer the Tax-Free Deposit Account to the Tax-Free Savings Investment account.
  • Don’t allow the funds to be paid into your bank account, they should be paid directly to the new provider.
  • If funds are paid to your bank account, this will be deemed as a withdrawal and that will reduce the lifetime allowance by the amount that you have contributed.

I wish you all the best in your investment journey and may it yield great results.


Which tax-free investment account should I consider 

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