Is Your Cash Working for You or for SARS?
South African investors have hoarded trillions of rands in cash amidst global chaos. But while cash feels safe, it might be quietly destroying your wealth.
In a world where negative economic and geopolitical news dominates the headlines, many South Africans have sought refuge in call accounts, notice deposits, and interest-bearing unit trusts. While these “safe havens” offer peace of mind, many investors seldom understand the after-tax return they are actually receiving.
With headline fixed deposit rates hovering between 6% and 7.5%, the surface-level return looks attractive. However, once you factor in a 40% tax rate, that return plummets to a measly 3.6% to 4.5%.
The Tax Relief Thresholds
South African taxpayers do have some relief through annual interest exemptions:
- 📉 Under 65 years old: R23,800 exemption (Invest +/- R350,000 tax-free)
- 📈 65 years and older: R34,500 exemption (Invest +/- R500,000 tax-free)
Any cash investment over these limits effectively fills SARS’s coffers while your real wealth stays below inflation.
Inflation: The Invisible Thief
It is critical for “cashers” to understand that inflation is enemy number one. It quietly steals your purchasing power, and by the time you notice, the damage is often irreversible. Investing exclusively in cash can materially destroy long-term growth.
As interest rates are forecast to cut further, the benefit of staying in cash diminishes daily. If your after-tax interest rate is below the rate of inflation, you are losing money every single year.
Time to Reassess Your Strategy?
A structured review of your cash holdings and tax exposure can ensure you aren’t unintentionally enriching SARS at your own expense.
Created by Wynand Gouws, CFP® professional
Member of the Financial Planning Institute of Southern Africa
