SIMON BROWN: Where to stash your emergency fund
You’re a savvy saver with an emergency fund. Well done! But what’s of more value — a higher return or easier access?
One of the challenges of being a diligent saver and having a solid emergency fund is deciding where to put the emergency money. Even with rising rates, returns are generally low for cash. Where will you earn the best rate while paying the lowest tax — or no tax at all?
The reason tax is the first issue to consider is that interest is added to your income and is taxed accordingly. But the SA Revenue Service does offer an exemption. If you’re under 65, the first R23,800 of interest is excluded, while for those over 65 the exemption is R34,500. For most people under 65 and for whom savings really are just for emergencies, the R23,800 exemption is likely more than enough, and means they are not going to be taxed on any interest. But this also means that using a tax-free account is not a great idea, as they are not paying any tax anyway. Further, using that account for savings will affect their annual and lifetime limits...