I was in the bank recently and while I was waiting in the queue I was gob-smacked by how many people (mostly elderly) were making withdrawals or giving notice on their 32 day notice accounts.
Consider the good (old fashioned) 32 day notice account: Your money is locked away for at least 32 days…in the hope that you are going to get a decent interest rate. Think again. The “big four” banks are currently offering the following interest rates on an investment of less than R10000:
Why would anyone make use of such an account when you can get more than 7.5% from a money market unit trust account where there is no upfront fee and you can access all the money at 48 hour notice? And how can anyone at the bank actually advise clients to still make use of these accounts?
This is another offering from Std Bank that gets a big thumbs down from us. The radio ad sounds promising:
• Access up to 40% at any time
• Great interest rate of up to 7.4%
However, you only get 7.4% on an investment of R5m or more that you are prepared to invest for at least 12 months (you would have to be crazy to do this)! For most of us the interest rate would be closer to 6% pa.
And while you can access up to 40% of your investment amount before the term expires, you will be penalised if you want to access more.
So why would you invest your money into an account with a low interest rate and a penalty to access your funds when you could be getting ±8% on a money market unit trust account with full access to your funds within 48 hours and no penalties?
With interest rates having fallen so far and the possibility of still more cuts on the horizon, anyone looking for interest income is pretty hamstrung at this stage. Money market rates are 7% per annum and many of the banks are offering “exceptional rates” for 1 year fixed deposits. They will even “enhance” this if you are over 55.
For anyone who is prepared to be locked in for a while there is an even better option that has been overlooked while short term interest rates have been high and that is the RSA Retail Savings Bond. It is a 2, 3 or 5 year option that is being offered by the SA Government (National Treasury) directly to the public and the interest rates are far better than anything else out there (and there are no fees to get in). The only “catch” as I can see it is that you are locked in for the period (you can exit after 12 months but there will be an exit penalty). The rates are in the table below but for more information on this go to www.rsaretailbonds.gov.za
CURRENT INTEREST RATES
|2 Year Fixed Rate
|3 Year Fixed Rate
|5 Year Fixed Rate
They also have an inflation linked option which is also quite attractive.
That’s all for now