The Mother of the Nation recently celebrated her 80th birthday. Unfortunately, the festivities weren’t all smooth sailing: a gift of R83 000 was stolen from Winnie Madikizela-Mandela’s purse.
Madikizela-Mandela was apparently planning to deposit the money in a bank account. This should serve as a reminder to use cashless services when dealing with large amounts of money, even if an EFT doesn’t quite have the impact of a large bundle of cash. Unless you’re a hostage negotiator in a Michael Bay movie, briefcases full of unmarked bills aren’t worth the trouble.
The news reports are missing an interesting detail. What account did Ma Winnie intend to deposit the cash into? We’re not sure what she was planning to use the money for, but as the cash was a birthday present, there’s a good chance she didn’t need to use it immediately. That means she could have secured a higher interest rate by choosing a fixed-term savings account. And as a senior citizen, Madikizela-Mandela would have been eligible for a preferential rate at many banks.
Those details matter because the interest rate you earn on your savings significantly affects your wealth. To illustrate just how much, let’s take a quick look at the returns Madikizela-Mandela could have earned.
We wish Ma Winnie a long and productive life, so let’s calculate how much money she’d have to spend on her 90th birthday bash if she invested that R83 000 wisely.
Suppose she wanted instant access to her cash and simply invested in a current account.
Ma Winnie continues to be an outspoken supporter of the South African government, so let’s assume she patriotically banks with Postbank.
She might have chosen Postbank Smart Save account, which PostBank claims is one of South Africa’s favorite savings accounts, with 1.4 million opened so far.
Assuming the money was untouched over a ten year period, at an annualised nominal return of 3.65% that deposit would be worth R118 787.61 in ten years. (For the sake of simplicity, all our calculation are going to assume an unchanged rate over ten years.)
More attractive than hiding your cash in your mattress, but she could do better.
There are a few ways to earn a higher rate. An obvious method is to choose an account with a notice period (i.e you have to wait a certain amount of time before you can get access to your savings). That’s a great option no matter how much you have to invest, if you don’t need the cash right away.
However, many of the accounts offering the best rates require more substantial minimum deposits. For example, by adding an additional R17 000 to the invested sum, Madikizela-Mandela would be eligible for an Investec Top 5 Optimiser account, which requires a minimum opening deposit of R100 000.
By choosing a notice period of 90 days, she could earn an annual return of 7.83%, which would see her invested sum of R100 000 worth R212 518.16 by 2026. That’s a gain of R112 518.16. Investec’s Top 5 Optimer account has the added benefit that, although it is a notice deposit, you can access 10% of your funds (R10 000 for Ma Winnie) immediately.
Madikizela-Mandela could earn an even higher rate if she were willing to lock up the money for longer in a fixed deposit account. Fixed deposit accounts have the added feature that the interest rate you earn is guaranteed or fixed upfront and does not change, as with call and notice accounts.
Capitec’s 5 year fixed deposit account comes out best using our My Treasury Optimiser. Madikizela-Mandela would earn an annualised nominal return of 10.25%, which would result in returns of R165 329.77 over the same ten year period.
The result: an impressive R265 329.77 to celebrate Ma Winnie’s 90th birthday.
Comparing all the details
These calculations illustrate a number of important truths about growing your wealth:
- Lazy money produces little growth. Put you cash to work in an account that earns you more.
- A fixed saving term can offer you better returns. Compare different fixed terms to discover how to maximise your cash investments.
- The more you have to save, the higher the returns you can potentially earn.
- Senior savers receive preferential rates. That’s why it’s important to compare all relevant information when looking for the savings account with the highest interest rate.
That’s a lot of information to process, especially when you consider that there are hundreds of savings accounts available to South Africans at several financial institutions. How could anyone search through all the variables and find the best rate?
The My Treasury Savings Optimiser has made it easy. Simply enter your savings preferences and your age and investment amount, and the Optimiser will instantly show you the savings accounts that offer you the best returns. It’s that easy. The only thing missing is the friend who gives you R83 000 for your birthday, instead of the third cheapest bottle of Woolworths pinotage.
Maximise your wealth. Get the highest returns on your savings with the free My Treasury Savings Optimiser.