Latest news with #SavingsAccount
IOL News
3 days ago
- Business
- IOL News
How to maximise your tax-free savings account for long-term wealth
Discover how to effectively utilise your Tax-Free Savings Account (TFSA) to reduce your tax burden and enhance your long-term financial strategy. Image: Freepik Many South Africans are looking to reduce their tax burden and improve overall tax efficiency, and one of the most effective tools available is the Tax-Free Savings Account (TFSA). With an annual contribution limit of R36,000 and no tax on interest, dividends, or capital gains, the TFSA offers significant long-term benefits – although it's important to ensure that you align your TFSA with your broader investment strategy. Here's how to get the most from your tax-free savings. Use your tax-free allowance wisely: The TFSA has become a key component of long-term financial planning because all income and growth earned within the structure, including interest, dividends, and capital gains, are tax-free. Note, however, that contributions are made with after-tax income, and no tax deduction is available on contributions such as in the case of retirement fund contributions. While it, therefore, makes sense to first maximise your retirement fund contributions, the TFSA remains an exceptional long-term investment vehicle. Think long-term from the start: The tax benefit in the early years of a TFSA is fairly small, with the compounding tax savings only becoming meaningful after about a decade. With this in mind, a TFSA is best suited to long-term investing and is not ideal for an emergency fund. It can, however, be used to supplement retirement savings or to meet other long-term goals, such as funding a child's tertiary education. Structure your contributions to suit your cash flow: Legislation permits annual TFSA contributions of up to R36,000 with a lifetime limit of R500,000, with most providers allowing flexible contribution options for investors depending on their personal circumstances. For instance, if your income is variable, you can set up a modest debit order and top it up when additional income becomes available, thereby allowing you to consistently build wealth without placing strain on your budget. Understand the implications of withdrawals: While it is possible to withdraw from your TFSA at any time, it's important to understand the consequences because withdrawals can reduce your lifetime contribution capacity. For example, if you've contributed R300,000 towards your TFSA and withdraw R50,000, you may only contribute another R200,000 in the future, regardless of whether you replace the R50,000 later. Importantly, withdrawals not only reduce your tax-free limit but can also interrupt the compounding growth within the investment. Match your investment to your time horizon: When selecting the underlying investment for your TFSA, consider how long you intend to stay invested. If you're investing for your child's education 15 to 20 years from now, or to supplement retirement income, your investment horizon may be long enough to justify growth assets. Having said that, it's important to balance return expectations with your risk tolerance. Also, remember that individuals under 65 already enjoy a tax exemption of R23,800 per year on interest earned (R34,500 if over 65), so using your TFSA to invest in low-yielding interest-bearing assets might not be the most efficient use of your tax-free allowance. Choose an efficient investment platform: There are numerous TFSA providers in South Africa, ranging from banks to investment platforms. While fixed-term accounts and money market funds are available, those with a long investment horizon should consider a more aggressive unit trust portfolio to harness better growth over time. Ideally, select a platform that provides consolidated reporting across your retirement and discretionary investments, so that your TFSA integrates seamlessly into your overall strategy. Avoid over-contributions and penalties: It's important to ensure that you stay within your R36,000 annual limit, as any contributions above this will attract a penalty tax of 40% from Sars, regardless of your personal income tax bracket. If you have more than one TFSA, be sure to track contributions carefully to avoid exceeding the threshold and incurring avoidable penalties. Stay compliant with Sars: Even though no tax is payable within a TFSA, you are still required to disclose the investment on your tax return. Your provider will issue a tax certificate, and it's important to include all TFSA-related information when filing with Sars. Maintaining transparency ensures compliance and helps avoid any administrative issues. A TFSA can be a powerful tool for building long-term wealth, provided it is used strategically, managed consistently, and integrated into your broader financial plan. * Odendaal is an associate financial planner at Crue Invest. PERSONAL FINANCE
Mint
19-05-2025
- Business
- Mint
DBS Bank revises savings account rates, offers upto 5.5 per cent
DBS Bank India has revised its savings account interest rates across balance slabs, with the new structure offering one of the most competitive returns in the industry. The revised rates show the bank's continuous efforts to offer enhanced value to its customers, balancing safety and returns, while maintaining a forward-looking deposit strategy. Following the recent cuts in the repo rate, with multiple banks having lowered interest rates on savings accounts, the higher rate on the DBS Savings Account, makes it a uniquely attractive proposition for those looking to maximise their savings and grow their wealth. For customers residing in India, balances between ₹ 5 lakh and ₹ 50 lakh will now earn 5.50% per annum — a rate that is nearly twice as high as those being offered by many peer banks for the same balance slab. Amount (Rs) Interest Rate (%) Upto 2 lakh 2.75 2-5 lakh 3.25 5 -50 lakh 5.50 Above 50 lakh 4 DBS Bank India has a tiered rate structure, offering differentiated value as per the savings account balances for both domestic and non-resident account holders. For non-resident account holders, balances above ₹ 2 lakh will earn 3 per cent per annum, while balances up to ₹ 2 lakh will continue to earn 2.75% per annum. This timely proposition combines the convenience of a savings account with the advantage of significantly higher returns on certain balance tiers, creating a compelling reason to open a DBS Savings Account. The revised rate structure for a DBS Savings Account is also available on the bank's website which can be accessed here: This high-interest savings account can be opened digitally through the DBS digibank app. In 2024, DBS announced a pioneering, new feature for Non Resident Indians (NRIs) through which they could open a savings account digitally, setting the standard for a seamless account opening experience that can be completed within an hour and on-the-go. DBS Bank has been present in India for more than 30 years, opening its first office in Mumbai in 1994. DBS is a financial services group in Asia with a presence in 19 markets. It is headquartered and listed in Singapore. For all personal finance updates, visit here
Yahoo
09-04-2025
- Business
- Yahoo
Afraid to look at your 529 account? How to manage education savings in a down market.
If you have an education savings account to manage while the stock market is flailing, and your kids are heading to college, you may be afraid to log in and survey the damage. Many consumers aren't all that familiar with how education savings accounts work, especially by comparison with more ubiquitous tax-favored retirement accounts. A 529 plan is a tax-advantaged account you can use to pay a wide range of education expenses, with plans sponsored by every state and the District of Columbia. They allow tax-free withdrawals for qualified expenses. They boast high contribution limits and are quite flexible in investment choices, according to a Motley Fool explainer. A Coverdell Education Savings Account, or ESA, also allows tax-free withdrawals on qualified expenses, and investment options are generally broader than for 529s, Motley Fool reports. The drawback is lower contribution limits: $2,000 per year per beneficiary. What to do with those accounts in a down market depends on several variables, starting with how soon you'll need the money. Many 529s and Coverdells function as college funds for children or grandchildren. If the beneficiaries are a decade or more away from college, then it might not matter so much how the stock market is doing now. If a beneficiary is in college now, you may face more urgent choices. To make investment decisions simpler, many education savings plans offer age-based options. You can pick an aggressive, moderate or conservative strategy keyed to the enrollment date of a child. You can also choose to manage investment decisions yourself. In that case, you may face some pressing choices about how your money is invested. Here are some tips from the experts, organized according to how soon the money will be spent. We'll assume the fund is for children or grandchildren to go to college, while recognizing that anyone can open a 529 or Coverdell account for a wide range of educational purposes. If you have an education savings account for kids who are 10 or 15 years away from needing the money, 'there's nothing that you need to change,' said Peter Lazaroff, a certified financial planner in St. Louis. The reason: Bear markets seldom last longer than a few years. Your education savings will have plenty of time to recover. You can ignore them for now. Or, you can take advantage of the down market and accelerate your contributions. An individual may gift up to $19,000 a year to a 529 account in 2025 without triggering federal gift taxes, and you're allowed to fund up to five years of contributions in a single year. 'If you really have a lot of extra money, you may want to think about super-funding a 529 plan in a bear market,' Lazaroff said. If the kids will need your education savings dollars in a few years, then you may be more worried about the current market downturn. Here's where those age-based investments work to your advantage. If you have a 529 with a target enrollment date of 2027, and the money is allocated accordingly, then you may have only a small percentage of the funds invested in stocks. 'If you have a child in high school, and you're in an age-based option, your account might be down a little, but you haven't thrown off your entire plan,' Lazaroff said. When it comes to target dates, most 529 plans are more conservative than retirement plans. A target-date 529 plan typically assumes the money will be spent in a narrow range of years, whereas a target-date retirement account assumes the funds will be spent across a much longer span. Target-date 529 plans "do get very conservative close to school age, and they descend rapidly in terms of risk," said Monica Dwyer, a certified financial planner in West Chester, Ohio. 'If you are in a 2025 target-date retirement fund, you may still be 60% stocks,' said Jonathan Swanburg, a certified financial planner in Houston. If you have a 529 plan with the same target date, by contrast, 'you are likely 10% stocks and 50-60% cash equivalents,' a much more conservative mix. If you are already spending down your education savings, and you opted for age-based allocations, then your funds are probably invested conservatively. The stock-market downturn may have little effect. Even if the account has lost some value, remember that 'you won't need all of the money on day one of college,' Lazaroff said. Pace your spending, and give the market time to rebound. If your education savings have lost significant value, and you're spending the money now, consider alternatives to withdrawing the money. 'Can you pay your tuition out of pocket while your account recovers?' Lazaroff said. Perhaps you can pay for the current semester in installments, drawn from your checking and savings accounts. 'The most important thing is not to panic and go to all cash,' Lazaroff said, liquidating a 529 or Coverdell while its value is down. If you are able to leave some or all of your 529 funds untouched, Swanburg said, then think about keeping the money invested, ride out the down market, and 'use it for your child's future Roth contribution, rather than tuition,' taking advantage of a recent change in investment laws. You can also move the money "from one sibling to another," Dwyer said. If you can keep education funds invested during a down market, you can spend them on a younger child when their value recovers. Many investors choose to ignore target dates in 529 plans and allocate the money themselves. If that's your situation, you may want to take a hard look at your investments right now. If your 529 plan is invested entirely in cash or cash equivalents, then the current market could present an opportunity to invest some of the funds in stocks. 'Things are on sale,' Lazaroff said. 'You can buy the same shares for less dollars.' Remember, however, that you are generally allowed to change investments within a 529 plan only twice per calendar year, or when you change beneficiaries. When the market is volatile, that constraint could be a good thing, because it hinders investors from making impulsive changes, said Greg McBride, chief financial analyst, personal finance, at Bankrate. 'I think, by nature, that sort of helps enforce the hands-off, ride-out-the-volatility advice,' he said. This article originally appeared on USA TODAY: What to do with a 529 college savings plan as the market swoons
Yahoo
06-02-2025
- Business
- Yahoo
Where to Invest Your $7,000 TFSA Contribution for Long-Term Gains
Written by Kay Ng at The Motley Fool Canada With the Tax-Free Savings Account (TFSA) contribution limit for 2025 set at $7,000, Canadians have a fantastic opportunity to invest for long-term growth without paying taxes on the gains. But with a range of eligible investments — from cash and Guaranteed Investment Certificates (GICs) to stocks, mutual funds, and exchange-traded funds (ETFs) — where should you place your contribution for the best results? The answer lies in strategically choosing investments that offer strong potential for long-term returns while fitting your risk profile. One of the easiest and most efficient ways to grow your TFSA is by investing in ETFs, which offer instant diversification. A great example of a low-cost, diversified ETF is iShares Core Equity ETF Portfolio (TSX:XEQT). This fund provides 100% equity exposure across global markets, with approximately 45% in U.S. stocks, 25% in Europe, Asia, and Australia, and another 25% in Canadian stocks. The remaining 5% is invested in emerging markets. In the last five years, XEQT has posted an impressive annual return of about 11.6%, making it an excellent choice for long-term investors, especially on any pullbacks. The ETF also has a low management expense ratio (MER) of 0.20%, ensuring more of your money stays invested. Plus, with a recent quarterly cash distribution yielding 3.16%, you get a nice stream of passive income alongside growth. Artificial intelligence (AI) is one of the most exciting sectors for long-term growth, though it comes with higher volatility. If you're not keen on picking individual AI stocks but still want to tap into this rapidly growing area, consider an AI-focused ETF like CI Global Artificial Intelligence ETF (TSX:CIAI). This actively managed ETF is helmed by a team of experts and holds high-quality companies in the AI space, including top names like NVIDIA, Broadcom, and Microsoft. Launched in May 2024, the ETF has already returned around 33% since its inception, highlighting the immense growth potential of AI-focused investments. With a MER of 0.42%, it's a more efficient way to gain exposure to the AI revolution without having to worry about picking individual stocks. However, keep in mind that the volatility of the tech sector can lead to more significant price fluctuations, so this is better suited for investors with a higher risk tolerance. If you prefer investments that provide both growth and income, dividend stocks might be a good fit. Many established companies pay a steady stream of dividends to shareholders, which can be reinvested for compounded growth. A strong candidate for dividend income is Bank of Nova Scotia (TSX:BNS), which offers a solid yield of around 5.9%. While its stock has lagged behind some of its peers, it remains a reliable dividend payer with a sustainable payout ratio of 60% of adjusted earnings. Analysts believe Bank of Nova Scotia shares are undervalued by approximately 11%, which presents an opportunity for both capital appreciation and consistent dividend income. With the potential to deliver total returns of about 10% per year over the next three years, this stock is a solid choice for investors seeking a blend of income and growth. While there are many options for your TFSA contribution, ETFs, AI-focused funds, and dividend stocks are good considerations for long-term gains. Before making a decision, it's essential to assess your risk tolerance and investment horizon. Whether you opt for diversified ETFs, take advantage of the explosive growth in AI, or focus on steady dividend income, your $7,000 TFSA contribution can be a powerful tool for building wealth over time. The post Where to Invest Your $7,000 TFSA Contribution for Long-Term Gains appeared first on The Motley Fool Canada. Before you buy stock in Bank of Nova Scotia, consider this: The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Bank of Nova Scotia wasn't one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years. Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the 'eBay of Latin America' at the time of our recommendation, you'd have $18,750.10!* Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 35 percentage points since 2013*. See the Top Stocks * Returns as of 1/22/25 More reading 10 Stocks Every Canadian Should Own in 2024 [PREMIUM PICKS] It's Time to Buy: 1 Canadian Stock That Hasn't Been This Cheap in Years Where to Invest Your $7,000 TFSA Contribution 3 No-Brainer TSX Stocks to Buy With $300 5 Years From Now, You'll Probably Wish You Grabbed These Stocks Subscribe to Motley Fool Canada on YouTube Fool contributor Kay Ng has positions in Bank Of Nova Scotia and Microsoft. The Motley Fool recommends Bank Of Nova Scotia, Microsoft, and Nvidia. The Motley Fool has a disclosure policy. 2025 Sign in to access your portfolio
