Skip to main content
What is a tax free savings account and how to open one.

The importance of a TFSA (Tax-Free Savings Account)

Every so often, the government gives you a tax break. It doesn’t happen very often, so it’s all the more reason to take advantage of it when it comes your way.

As part of National Treasury’s goal to improve the poor savings culture in South Africa, they introduced a special savings product that is free from paying tax, known as a Tax-Free Savings Account (TFSA).

In a TFSA you don’t have to pay income tax, dividends tax or capital gains tax on the returns from these investments. Maxing out your TFSA should be your first priority if you have money to invest. This is assuming you have an emergency fund and no debt left, you should always pay off your debt as fast as possible in order to increase your networth and improve your cash flow.

Important Things to Know

Before investing in a TFSA there are a few important things to consider:

  • You cannot add more than R33 000 in a tax year to a TFSA. A tax year runs from 1 March to 28/29 February every year.
  • Over your lifetime you are not allowed to contribute more than R500 000 to a TFSA. You can therefore contribute R33 000 per year for about 15 years before you reach your R500 000 lifetime limit.
  • Once you have reached your lifetime limit, you do not have to withdraw the money and you can leave the money in the account to grow even further. You just can’t add any more money.
  • You can make withdrawals as often as you like as there are no withdrawal limits, although this is not recommended. If you withdraw money from the TFSA you can never replace what you have withdrawn. If you contribute R33 000 and withdraw R10 000 in a tax year you cannot put the R10 000 back to top up to R33 000 again. This also applies to your lifetime limit. If you withdraw R10 000 in a year for example, effectively your lifetime limit is decreased by R10 000, from R500 000 to R490 000.
  • These limits apply across all TFSA investments that you might have, even with other providers.    If a person exceeds the contribution limits, there is a penalty of 40% of the excess amount that you will need to pay to the South African Revenue Services (SARS). Investors should therefore be careful when they have more than one TFSA.
  • Although the TFSA is called a “savings” account, it is not a savings account in the traditional sense of the word, like a bank account. You can also invest tax-free in investment funds such as unit trusts and exchange traded funds.

Should I open a Tax-Free savings account for my child?

You can, but don’t.

Simon Brown explained why he did not open a TFSA for his niece and nephew (he buys them ETFs in a normal account, not a TFSA).

Simon made a very important point about the advantage of time when you combine it with no tax. When you open a TFSA for a child, the trick is, when they hit twenty years old and they might want to use the money for education, a first car, an apartment, get married, take a gap year, etc.

These are all cool things to spend the money on, but if they cash out their Tax-Free savings account at the age of 20, they are losing the real advantage of a TFSA, which is if you can open a Tax-Free savings account when you are a kid and run it until you are 65 years old, your returns are going to be humongous. Whereas if you cash it out after 20 years you’ve made a good return, but you’ve given up on 45 years of even more potential returns.

How to open a TFSA/TFIA?

You can open a Tax Free savings and investment account with any licensed Bank, insurer or broker (start with EasyEquities) and you can choose from one of the following investment vehicles:

  • Fixed deposits
  • Unit trusts (collective investment schemes)
  • Retail savings bonds
  • Certain endowment policies issued by long-term insurers
  • Linked investment products
  • Exchange traded funds (ETFs) that are classified as collective investment schemes.

What are Exchange Traded Funds (ETFs)

We recommend that people start out with ETFs. In our opinion, Exchange-traded funds are one of the most important and valuable products created for individual investors in recent years.

Essentially you can look at an ETF as a diversified basket of different companies, enabling you to buy the basket instead of all the underlying companies individually.

Innovation has been the hallmark of the ETF industry since its inception less than 25 years ago. Undoubtedly, there will be new and more unusual ETFs introduced in the years to come. While innovation is a net positive for investors, it’s important to realize that not all ETFs are created equal.

Exchange Traded Funds (ETFs) that qualify for Tax-Free Investment Accounts

Domestic (SA) Equities

Broad-based large cap

  • ASHT40 Ashburton Top 40
  • CSEW40 CoreShares Equal Weight Top 40
  • CTOP50 CoreShares Top50
  • NFSH40 NewFunds Shari’ah Top 40
  • GIVISA NewFunds S&P GIVI Top 50
  • NFSWIX NewFunds SWIX 40
  • STX40 Satrix 40
  • STXSWX Satrix SWIX 40
  • STXRAF Satrix RAFI 40
  • STAN40 Stanlib Top 40
  • STANSX Stanlib SWIX Top 40
  • SYGT40 Sygnia/Itrix Top 40
  • SYGSW4 Sygnia/Itrix SWIX 40

Sectors

  • ASHMID Ashburton MidCap
  • GIVFIN NewFunds S&P GIVI SA Financial
  • GIVIND NewFunds S&P GIVI SA Industrial
  • GIVRES NewFunds S&P GIVI SA Resources
  • STXFIN Satrix FINI 15
  • STXIND Satrix INDI 25
  • STXRES Satrix RESI 10

Style / Factors / “Smart”

  • DIVTRX CoreShares Dividend Aristocrats
  • NFEMOM NewFunds Equity Momentum
  • NEWFSA NewFunds NewSA
  • NFEVOL NewFunds Low Volatility
  • NFEVAL NewFunds Value Equity
  • STXDIV Satrix Dividend Plus
  • STXQUA Satrix Quality South Africa

Domestic (SA) Interest Bearing

  • ASHINF Ashburton Government Inflation
  • PREFTX CoreShares PrefTrax
  • NFGOVI NewFunds GOVI
  • NFILBI NewFunds ILBI
  • NFTRCI NewFunds TRACI 3month
  • STXILB Satrix Inflation-Linked Bonds

Domestic (SA) Listed Property (Additional reading)

  • PTXSPY CoreShares PropTrax SAPY
  • PTXTEN CoreShares PropTrax Ten
  • STXPRO Satrix Property
  • STPROP Stanlib SA Property

Domestic (SA) Multi Assets

  • MAPPSG NewFunds MAPPS Growth
  • MAPPSP NewFunds MAPPS Protect

International Listed Bonds

  • ASHWBG Ashburton World Government
  • ETFGGB Stanlib Global Govt. Feeder

International Listed Property

  • AMIRE AMI Real Estate ex-SA
  • GLPROP CoreShares S&P Global Property
  • ETFGRE Stanlib Global REIT Feeder
  • SYGP Sygnia/Itrix Global Property

International Equities

  • AMIB50 AMI Bi50 ex-SA
  • ASHGEQ Ashburton Global 1200
  • CSP500 CoreShares S&P 500
  • GLODIV CoreShares Global Div. Aristocrats
  • STXEMG Satrix MSCI Emerging Markets
  • STXWDM Satrix MSCI World
  • STX500 Satrix S&P 500
  • STXNDQ Satrix Nasdaq 100 Feeder
  • ETF500 Stanlib S&P 500 Feeder
  • ETF5IT Stanlib S&P 500 Info-Tech Feeder
  • ETFWLD Stanlib MSCI World Feeder
  • SYG4IR Sygnia Itrix 4th Industrial Revolution
  • SYGEU Sygnia Itrix Eurostoxx 50
  • SYGUK Sygnia Itrix FTSE 100
  • SYGJP Sygnia Itrix MSCI Japan
  • SYGUS Sygnia Itrix MSCI USA
  • SYGWD Sygnia Itrix MSCI World
  • SYG500 Sygnia/Itrix S&P 500

Too many ETFs, where will should I start?

Based on the real-world feedback and research by our community members we recommend the following TFSA portfolio to help you start your investment journey.

With this portfolio, you will be investing with like-minded investors on our platform and find common ground for further learning, research, and local investor meetups.

Our TFSA portfolio consists of the following ETFs:

This portfolio gives you exposure to South Africa, the developed world, emerging markets, and property.

How to open an EasyEquities account

First, you need to click on this link to register (Click this Link)

After you have registered you need to Fica your account by uploading your documents to EasyEquities.

You need to upload a copy of your ID or Passport Document and Proof of Address like a utility bill, such as water, electricity or rates (less than 3 months) or a copy of a signed lease agreement (by both parties), (less than 1-year-old)

Alternatively, you can email the documents to [email protected]

Please quote your account number in the subject line of the email.

Newswire

Newswire

The Platinum Wealth Newswire publishes content from opinion pieces submitted by various financial writers, journalists and analysts. Got a story? Send us an email to: news [at] platinumwealth.co.za