BAD NEWS FOR SAVVY CONSUMERS

The South African Reserve Bank’s announcement that the repo rate would rise by 25 basis points is not the best news for consumers. But Nedbank’s Head of Retail Investments, Sisandile Cikido, says a change like this is an opportunity for smart investors to diversify their investment portfolios.

‘An interest rate hike means that the loans you have (for example hire purchase agreements or mortgages) will be more expensive. But it also means that the interest banks pay on certain investments will be more. And a higher interest rate cycle is the ideal opportunity to take out an investment that would lock in that rise over the medium to longer term, because in due course, interest rates will go down again’, says Cikido.

She further explains that certain notice and term-investment accounts tend to offer higher interest rates after an interest rate hike. ‘When the interest rate is high, opening an investment account is a way of locking in that benefit, even when the cycle turns.

Cikido emphasises that diversification should be a key principle of any investment portfolio. ‘A fixed-rate or term investment involves investing money for a specific number of months. During that time, you cannot access your money without being charged a penalty fee. And to maximise growth, you should capitalise the interest that you earn. It’s also wise to have money in an account with a variable interest rate that you can access quickly in emergencies. Covid-19 proved the value of this approach as the proverbial ‘rainy day’ became a reality. Life goes on during a crisis, and you need access to money within a reasonable time,’ she says.

The table below illustrates how your money can grow if you invest it in a Nedbank 12 months Tax-Free Fixed Deposit available to South Africans to take advantage of the higher interest rate depending on how much you invest.

CapitalInterest rateDaily interestStart dateEnd dateInvestment termInterest amount
R36 000,009,05%R8,931 March 20231 March 202412 monthsR3 266,93
R75 266,939,05%R18,661 March 20241 March 202512 monthsR6 811,66
R118 078,589,05%R29,281 March 20251 March 202612 monthsR10 686,11
R164 764,699,05%R40,851 March 20261 March 202712 monthsR14 911,20
R215 675,909,05%R53,481 March 20271 March 202812 monthsR19 572,14
R271 248,049,05%R67,251 March 20281 March 202912 monthsR24 547,95
R331 795,999,05%R82,271 March 20291 March 203012 monthsR30 027,54
R397 823,539,05%R98,641 March 20301 March 203112 monthsR36 003,03
R469 826,569,05%R116,491 March 20311 March 203212 monthsR42 635,79
R548 462,359,05%R135,991 March 20321 March 203312 monthsR49 635,84
R634 098,209,05%R157,221 March 20331 March 203412 monthsR57 385,89
R727 484,089,05%R180,381 March 20341 March 203512 monthsR65 837,31
R829 321,399.05%R205,631 March 20351 March 203612 monthsR75 259,21
R940 580,619.05%R233,211 March 20361 March 203712 monthsR85 122,54
R1 061 703,159,05%R263,241 March 20371 March 203812 monthsR96 084,14

Disclaimer: The amounts above are calculated at a static rate of 9,05% over 12 months.

The above illustration proves that, thanks to the interest rate hikes we’ve seen since November 2021, there’s never been a better time than now to start your investment journey. With that said, investors should always ensure they get good advice, says Cikido.

‘Every investment has pros and cons. For example, if the interest rate goes even higher, a fixed-rate investment would not benefit from the extra rise, but it will protect you when the interest rate drops. In contrast, an investment with a variable rate will benefit from all the interest rate hikes, but your returns will decrease as the interest rate inevitably goes down. Good investors always look at the bigger picture to optimise their investment portfolio.’

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