I received another unsolicited email today from an operation called “savemoney.co.za” about a tax-free savings account.
It’s just Old Mutual in disguise and despite claiming to offer the “best tax-free savings account in South Africa” a little digging shows that this is VERY far from the truth.They are, in fact, ripping off poor, unsuspecting and ignorant people. It is this kind of thing that continues to give the industry a really poor image and I am appalled that the FSCA continues to allow this kind of product to be so actively marketed. Talk about a wolf in sheep’s clothing!
Let’s take a closer look. The email claims that I can “Get a tax free savings plan from just R200pm” and so I followed the links to do just this. There are 5 or so steps and the initial default premium amount is R500 (not R200 as advertised). This needs to be amended manually to R200 and then there is only 1 fund option (with a TIC of close to 2% per annum and an early exit penalty as well).
I followed all the steps until the final submit button and at no stage is there any disclosure of the fees involved – that’s hidden very far away elsewhere on the website. I found them at the bottom of the FAQ section.
Turn’s out that a R200 debit order in the “best tax-free account in SA” will be subject to the following fees:
- Monthly admin fee of 5% of each premium (if the debit order is less than R350/month) so that’s R10 each month (no advice fee is applicable as this is a direct investment).
- An annual admin fee of 0.75% – so on R2400 that amounts to R18 in the first year.
- If the debit order is stopped or there is no debit order then there is a minimum fee of R20/month.
- So if you contribute R200/month for 1 year and then stop the debit order you will have paid R120 in admin fees (12*R10 on each debit order) an annual admin fee of R18 and then R20/month ongoing – by the end of the 2nd year there will be R240 less in your account! And each subsequent year after that too!
- (There are all sorts of T’s & C’s about how you can reduce your fees but the bottom line is that to reduce your fees you have to only invest in OM funds and you need to contribute at least R30k per annum before these reductions kick in.)
- And they claim it’s the best Tax-Free account in SA – what a load of rubbish!
Now consider an alternate through Gryphon Asset Management who have a minimum debit order of R200 on their unit trust funds – there are no initial monthly fees and their annual admin fees start at 0.2%. There is no minimum monthly fee if you stop the debit order. Clearly, this is far better than the OM TFSA.
But the real issue here is that if you only have R200 per month to put away, you should NOT be putting it into a tax-free account. Chances are very good that you are not paying tax anyway and the TFSA is NOT the appropriate investment for you.
It really is time that the FSCA started taking some of these companies to task about the quality of their offerings!