Picture: ISTOCK
Picture: ISTOCK

Cash TFSAs are for cash investments and are usually offered by banks and similar firms. Some are fixed deposits which face penalties for early redemption and some are call deposits which can be drawn down at any time with no penalty. The interest
earned on cash deposits is tax free, but note that in the 2017 tax year, the first R23 800 (R34 500 if 65 or over) of interest earnings is exempt from tax anyway.

To earn that amount of interest would require a deposit of R600 000 (assuming a 4% interest rate), so the tax shield of a TFSA becomes useful only after the balance has grown to a considerable amount. However, some providers reserve their highest interest rates for their TFSA deposit accounts, so the TFSA cash account may still offer advantages.

We consider all of these accounts to be low risk because the returns are guaranteed by the institutions offering them. Note, however, that you are still exposed to credit risk if the institution is for some reason unable to pay, so they are not completely risk free. To our knowledge, none of these accounts incur any annual costs.

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