With interest rate being cut by the South African Reserve Bank, there might be a bit of financial relief, leaving extra cash in your bank account. This is how to make it grow
We breathed a small sigh of relief recently when the South African Reserve Bank announced an interest rate cut of 25 basis points. Oh, and with subdued inflation rate in the short term, some households may be experiencing a little financial relief and flexibility in their budgets. This should provide a great opportunity to put some money away towards savings.
Saving ‘under the mattress’ versus saving for growth
Economic uncertainty has been the source of discomfort for many South Africans, and therefore the need to put money away for rainy days is even more important. While any form of saving is a step in the right direction, you need to ensure that the money you save works as hard as possible for you. Money should not simply be saved under the mattress; it should be invested to target growth. As a start, your money needs to grow faster than the rate of inflation to ensure that you don’t lose money over time. Examples of available savings vehicles include shares, unit trusts, tax-free savings accounts and traditional bank savings accounts.
What to do with your extra cash
Make sure you choose savings vehicles that are suited to your financial goals and your risk appetite, which is the degree of risk you are prepared to take. Also remember that different goals – like saving for a holiday or saving for retirement – require different time frames and savings solutions. Partnering with a financial adviser will help you plan and build an investment strategy that is aligned with all your life and financial goals.
Words: Madelein Marais, Old Mutual Personal Finance