Unrealistic Bank Charges
Extortionate bank charges are putting low-income consumers off tax-free savings accounts and understandably so. Individuals who have only a small amount to invest are better off not opening up tax-free savings accounts. The reason being, unrealistically steep bank charges simply absorb the small investments they deposit.
Thus, bank accounts, tax-free or otherwise, work against the objective of saving, when it comes to those who have little to save. Requiring as little as a R100 deposit a month, the intended purpose of tax-free savings accounts was to provide low-income consumers with a secure way to build up their personal wealth.
Supposedly Feasible
A single transaction costs about R5.00 and, as such, your R100 is cut down to R95 just as soon as it’s deposited. At an interest rate of 8% a year, you’ll earn a meagre R7.60 in the first year. This means, it will take you a whole year to earn back the banking fees deducted.
The maximum amount you can invest in a year is R30 000, whereas a lifetime investment cannot surpass R500 000. In this way, savings accounts were supposedly made more feasible for low-income consumers. Though, clearly, in practice this has been disproved.
Inaccessible Investment Products
Some financial institutions offer an investment product, whereby a max and min value of R30 000 can be invested once-off. In so doing, little administration is needed, as follows, management costs are lower. Banking fees hardly dent an amount like R30 000.
However, the majority of South Africans don’t have access to a lump sum of R30 000, aside from high and upper-middle earners. Accordingly, this investment product is simply unaffordable for most.
A Review is in Order
Regardless, promoting a culture of saving and investing remains vital to the cause of alleviating poverty. Tax-free savings accounts have the capacity to provide investors with immeasurable benefits, from unemployment relief and education funds, to escaping the debt trap and securing a comfortable retirement.
Even so, a review of bank charges is first evidently required.