Kaya BIZ speaks to ETFSA’s Wendy Hlatshwayo on how tax-free savings accounts work
Katlego Sekhu
South Africans are not investing enough, and government has spent the last decade trying to fix that. The result is the tax-free savings account, a vehicle that lets you invest without paying tax on the interest, dividends or capital gains you earn.
Kaya BIZ with Gugulethu Mfuphi spoke to Wendy Hlatshwayo, Client Liaison at ETFSA, about how the accounts work, and what a decade of disciplined use actually looks like in practice.
R46,000 a year, tax-free
The tax-free savings account was introduced in 2015 with an annual contribution limit of R30,000. That limit has since risen to R46,000 a year, with no tax owed on any of the growth.
“No interest, no dividends, no capital gains tax in your investment,” Hlatshwayo said. On the ETFSA platform specifically, that means investing in a basket of shares over the medium to long term, rather than money meant to be withdrawn in a year or two.
Hlatshwayo said the accounts work best with a clear goal attached. “Before investing, you need to always have a goal. You need to understand how long you are wanting to do it,” she said.
Three investors, one result: over R800,000 each
To illustrate what discipline over time can produce, Hlatshwayo pointed to three ETFSA clients who have been investing for eleven years. Each contributed a combined total of around R380,000. Each now holds more than R800,000.
One client traded actively within his account. Another stayed invested in a single property ETF, holding through the disruption of COVID-19. The third was a father investing on behalf of his son, who was ten years old when the investment began and is now twenty-one, with the account close to a million rand.
“They didn’t do anything. We did all the work for them,” she said of the compounding effect over time.
The most common mistake, she said, is withdrawing early, particularly from accounts opened for minors, since any withdrawal permanently reduces that person’s lifetime contribution limit. Her advice for anyone transferring between providers is equally direct: never let the money pass through your own hands first, or the same limit is affected.
Getting started requires little. ETFSA’s minimum investment is R300, as a lump sum or a monthly debit order. “It’s not about how much you have,” she said. “It’s about speaking to the right people and actually just starting.”
To hear the full discussion, listen to the podcast.
READ NEXT:
