Many South Africans are looking for ways to grow their money, especially with the rising cost of living and changing interest rates. Whether you’re setting money aside for emergencies, retirement, or future expenses, knowing the difference between saving and investing can help you make better financial choices. These two options serve different purposes, with different risks and returns. Some people rely only on savings accounts and miss out on growth, while others invest without fully understanding the risks.
Key Takeaways
- Savings Suit Short-Term Needs: Savings accounts are best for short-term goals or emergencies, offering low risk and easy access to funds but lower growth potential.
- Investments Offer Long-Term Growth: Investing is better for long-term goals like retirement or education, with higher potential returns but more exposure to market risk.
- Your Financial Goals Determine the Choice: Whether you save or invest depends on how soon you need the money, how much risk you’re willing to accept, and what you want to achieve financially.
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What Is Saving?
Saving refers to putting money aside instead of spending it. It involves regularly setting aside a portion of your income, whether by keeping it in a savings account at the bank or storing it in a secure place at home. The main aim of saving is to build up funds for future use, such as covering large expenses or handling unexpected situations.
Savings help you separate money from your daily spending, making it easier to manage and access when needed. This could be when you reach a financial target, like buying a household item, or when you face an urgent cost, like medical bills or car repairs. The money is kept easily accessible, which makes it a reliable option for short-term goals or emergency needs.
Considerations When Opening A Savings Account
Before opening a savings account, there are several factors you should think about to ensure it suits your financial needs.
What Are You Saving For?
You should begin by clearly understanding the reason you’re saving. Common examples include:
- Setting aside money for emergencies such as medical expenses or unexpected bills
- Gathering a deposit for a home or a vehicle
- Putting money away for personal goals, such as a holiday, home electronics or buying a car
- Covering once-off education expenses, like school textbooks or sports equipment
- Making use of a Tax-Free Savings Account, which allows you to save without paying tax on the interest, up to a set yearly and lifetime limit
How Long Do You Plan To Save And How Much Risk Can You Handle?
Savings accounts are designed for short to medium periods. They are considered low risk because the amount you deposit remains untouched, and the bank pays you interest over time. This makes it a practical option if you’re not comfortable with market-related risks.
Will You Need To Access The Money?
Another factor to consider is how easily you can get to your funds. A savings account gives you access to your money when needed, either instantly or within a notice period, depending on the type of account. This feature can be useful if you think you might need to use the money for an expected or unexpected expense.
Comparison of Best Savings Accounts in South Africa
| Bank | Account Type | Interest Rate Range | Minimum Deposit | Access to Funds | Monthly Fees |
|---|---|---|---|---|---|
| Capitec | GoalSave & Flexi-Savings | 3.5% – 9.92% | None noted | Flexible, notice options | R7.50 |
| Discovery Bank | Instant, Notice, Fixed Deposits | 3.5% – 9.5% | Not specified | Instant and notice options | Not specified |
| Nedbank (JustInvest) | Notice Account (JustInvest) | Up to 7.95% (first 3 months) | R500 | 24-hour access after notice | None noted |
| Investec | Fixed Deposits | 8% – 10.23% (60 months) | Not specified | Fixed term only | None |
| Standard Bank | Fixed Deposits | Varies by term (up to 5 years) | Not specified | Fixed term only | Not specified |
| TymeBank | GoalSave & Fixed Deposits | Up to 11% | Not specified | Flexible and fixed options | None noted |
| Absa | 7-Day Notice Accounts | Around 7.65% | R10 million | Notice required | Not specified |
What Is Investing?
Investing means putting your money into assets that are expected to grow in value, either by generating income or through an increase in worth over time. This could help you meet major financial goals such as paying for a child’s university fees or building a retirement fund. A common example is buying shares in a company, where your money is used to purchase part-ownership with the aim of future profit.
While savings accounts offer steady returns with very low risk, investment options can offer much higher returns, though they often involve some level of uncertainty. The possibility of earning more comes with the chance of short-term losses, depending on how markets perform.
Despite the risk, well-chosen investments tend to deliver better results over time. Historically, over the past century, the stock market has outperformed savings accounts when looking at long-term outcomes. However, people investing for short periods may still experience losses if market conditions turn unfavourable during that time.
Considerations When Opening An Investment Account
Before opening an investment account, it helps to ask a few practical questions to check if it suits your financial situation and goals.
What Are You Hoping To Achieve With Your Investment?
You should first be clear about the purpose behind the investment. Some common examples include:
- Saving for your child’s future education costs, whether for high school or university
- Setting aside money for retirement, so you can maintain your standard of living when you stop working
- Growing your overall wealth to support future goals such as buying property or starting a business
How Long Do You Plan To Invest, And How Much Risk Are You Comfortable With?
Most investment accounts are better suited to medium or long-term use. If you begin investing at a younger age, you have more time to deal with changes in the market, which allows for a strategy that involves more risk. If you are older, your approach should generally shift toward safer, more stable investment products to avoid losing money closer to the time you need to use it.
When Will You Need Access To The Funds?
Investments are usually meant for long-term use, such as retirement, where the money stays invested over many years or decades. However, if you’re saving for a goal that’s a bit closer, like school fees within the next 5 to 10 years, it’s better to choose an option that allows you to withdraw your money without facing penalties or restrictions.
Comparison of Investment Options in South Africa
| Investment Type | Description | Risk Level | Potential Return | Best For |
|---|---|---|---|---|
| Unit Trusts | Pooled funds managed by professionals; returns based on underlying assets. | Moderate | 8% – 18% per year | Medium to long-term goals |
| Exchange-Traded Funds (ETFs) | Tracks indexes like JSE Top 40 or MSCI SA; low-cost and tradable on JSE. | Moderate | Up to 30% (e.g. EZA ETF past year) | Diversified, low-cost investment exposure |
| Direct Shares | Buy shares directly on the JSE; requires market knowledge and carries higher risk. | High | Variable; depends on stock performance | Experienced investors seeking company-specific exposure |
| Fixed-Income Instruments | Includes government/corporate bonds and money market funds; lower risk, steady income. | Low to Moderate | Typically 6% – 10% | Stability and consistent income |
| Retirement Annuities & Living Annuities | Long-term retirement products with tax benefits; not accessible until retirement age. | Low to Moderate | Long-term growth; varies by provider | Retirement savings |
| Section 12J & Private-Equity Instruments | Former Section 12J schemes; now includes listed vehicles for infrastructure and private equity. | High | High but speculative | High-risk, long-term investors |
Key Differences Between Saving And Investing
Timeframe Of Your Financial Goal
Saving is generally meant for short-term needs or specific goals you plan to meet soon, such as setting aside money for a year-end holiday or keeping funds ready for unexpected expenses. These goals typically require access to your money within a few months or a couple of years. On the other hand, investing is usually linked to long-term objectives such as preparing for your child’s university fees or building up funds for retirement. Because these targets take longer to reach, you would normally invest over an extended period, such as ten, twenty or even thirty years.
Ease Of Access To Funds
Money saved in a standard bank account is usually easy to withdraw whenever you need it. This makes savings accounts more suitable for emergencies or upcoming purchases. With investments, the idea is to leave the money untouched for a long time, which means it may not be readily available when you want to access it. In some cases, you may face waiting periods, or you might have to pay early withdrawal fees to get your funds.
Level Of Risk Involved
Keeping your money in a savings account is generally considered low risk. It stays protected, but the trade-off is that the growth is limited. In comparison, investing carries higher risk, because the value of your investment can go up or down depending on market performance. There is a chance of making higher gains, but there is also a possibility of losing money. However, if you are willing to leave the investment untouched during poor market periods, your returns are more likely to improve over time as markets recover.
Potential Growth Or Returns
Savings accounts do pay interest, but the amount you earn is typically low and may not always keep up with inflation. Investments, while riskier, usually offer higher growth over longer periods. This is because they are linked to assets that have the potential to increase in value. Over time, your investment may grow significantly more than what you would receive through bank interest, which could make a noticeable difference to your total returns.
Is Saving Or Investing Better?
Whether saving or investing is more suitable depends largely on your current financial position and what you hope to achieve with your money in the future. Saving is generally more secure than investing, as it protects your capital from market fluctuations, but it often delivers lower returns over the long term. Investing carries higher risk, but it may offer greater growth if you can leave your money untouched for several years. You should consider how much uncertainty you are comfortable with and how much money you can consistently set aside each month. Make an effort to build up savings whenever possible and take time to understand how investment products work, or speak to a registered financial adviser if you need help deciding what suits your goals.
Conclusion
Choosing between saving and investing in South Africa depends on your financial goals, your timeframe, and your ability to manage risk. Savings accounts are suitable for short-term needs, such as emergencies or planned purchases, where access and security are more important than high returns. Investing is better for building long-term wealth, especially when you have time to handle market ups and downs. Many South Africans benefit from using both options, keeping some money in savings for emergencies and investing the rest for long-term growth. Understanding the role of each tool helps you make decisions that match your personal financial situation.
Frequently Asked Questions
What is the difference between saving and investing?
Saving means putting money aside in a low-risk account, mainly for short-term use or emergencies. Investing involves putting money into assets like shares or unit trusts with the aim of long-term growth, but it comes with more risk.
Is it safer to save or invest?
Saving is safer because your money is protected from market changes. Investments can earn more over time, but they can also lose value in the short term, depending on market performance.
Can I do both saving and investing?
Yes, many people use both. You can keep some money in a savings account for emergencies and invest extra funds for long-term goals like retirement or education.
Are savings accounts in South Africa taxed?
Yes, interest earned from savings accounts is generally taxed. However, a portion may be tax-free depending on your age and income level. Tax-Free Savings Accounts (TFSAs) offer an exception, with tax-free interest up to certain limits.
What is a good starting point for investing in South Africa?
If you’re new to investing, you could start with low-cost unit trusts or exchange-traded funds (ETFs). These options offer access to a variety of assets and are usually managed by professionals.
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