While savings accounts have been a mainstay for saving money and earning interest, there are some alternatives that have higher returns.
A savings account has been the go-to method for many of us, over the years, to put some money aside and watch it grow.There are now, however, a multitude of other ways to invest savings to make sure you get better returns.
1. Investment Account Options: Fixed And Retail Savings Bonds
If you have, traditionally, used a savings account as a safe way to earn interest, fixed deposit accounts will give you a similar sense of safety, but with better returns.According to Deposits.org, while savings accounts in South African give up to 7.23% interest, as of March 2017, fixed deposits accounts give you up to 13.73%. Of course, you'll want to do your research on the banks so that you know who you're giving your money to. After all, a high interest rate means nothing if you don't think the bank is stable. Have a look at our Guru Grade to read consumer's reviews on local banks.The trend overall, though, seems to be that fixed deposit accounts have better returns than savings accounts. Therefore, an individual bank may offer savings accounts with only 2% interest, but its fixed deposit account interest rates will be higher.There are also other types of investment accounts, such as the retail savings bonds, offered by Nedbank and the National Treasury. These work similar to fixed deposit accounts and have a guaranteed interest rate.
2. The Stock Market
When many of us think of the stock market, we think of crashes and volatility. At the same time, we also know of people who have become rich just from investing in the right company at the right time.Don't go all-in on one company. Rather, create a diverse share portfolio with smaller amounts. Some banks offer courses in trading shares, as well as consultation on trading.Online trading also means that it is easier to keep track of fluctuations. The JSE, for example, offers an online watchlist of share prices, so that you can track company share values over time.While you can see high returns from this kind of investing, always make sure you do your research and know what you're doing, so that you can minimise risk.
This is an option if you already have generous savings and can afford to buy another property to rent out. While being a landlord might not be one of your aspirations, the increasing demand for houses means that rent is becoming a lucrative income opportunity.Add to this the fact that millennials are faced with difficulty in buying their own homes. You have a large chunk of a generation which is more prone to rent than to buy.Cities, like Cape Town, have also seen property prices rise over the past few years. This means that many owners have seen the values of their properties significantly increase.Of course, investing in property comes with its own risks. But, if you plan it correctly and find the right tenants, you could make a healthy income from rent.
4. Retirement Annuities
If you're looking to save long-term for when you're older and no longer working, investing in retirement annuities might be a good option for you.Money you put into RAs are tax deductible. And, the investment returns from your money are also not taxed, according to Allan Gray.The catch is that you can only withdraw funds after you are 55 years of age (except in the case of disability). And, only one third can be taken out as a lump sum, while the rest is paid to you over time as a retirement income.
Local banks also offer various money market accounts, which typically have higher interest rate returns than a traditional savings account.The benefit of these types of accounts is that you still have access to your funds. Although, a minimum balance needs to be maintained to keep earning interest. Some banks also allow your interest rate to rise with your balance.
Nedbank describes money market accounts as having "the returns of an investment account, coupled with the convenience of a transactional account".