South Africans will earn more interest on select savings accounts, following the South African Reserve Bank (SARB) announcement of a 25-basis points interest rate hike last week. Given the interest rate hike, consumers are encouraged to look at options to save their hard-earned money.
“Saving will always be an important life goal that you can’t ignore. However, understanding the basics to creating a savings mindset is key to building a cohesive savings culture in South African households,” says Himal Parbhoo, CEO FNB Retail Cash Investments.
He adds that, “It’s never too late to start saving; as your initial savings will benefit you in the long-term. Deciding where to save or invest your hard-earned money is dependent on your life goal; but the key is to understand the basics of savings upfront which will help inform those saving decisions.”
Clear any misunderstandings that you may face about savings upfront. The first step in understanding how savings work is to identify the difference between simple or compound interest rate and how these rates are calculated.
Parbhoo explains that a, “simple interest is earned only on the savings that you put into your savings account, i.e. Interest is not earned on interest. While a compound interest is earned on the savings that you put into your savings account and on the interest, you earned in previous periods, i.e. interest is earned on interest.”
Compound interest are usually quoted as nominal rates and these rates should describe how frequently your interest is compounded. The more frequently your interest is compounded the higher your returns and interest earned will be.
There are many misconceptions on savings and investments. That it’s too risky to invest or you need to be wealthy to invest or rather saving is not as important now but maybe it will be in the future.
The key to understanding how savings works is to ask questions on:
- Where to save?
- How much is enough to save?
- When should I start saving and for how long?
- What returns will I receive?
- What products and solutions can help me save more?
“Ongoing education and awareness is important to drive the concept of savings and investing. Bottom line is that savings should be part of your lifestyle now rather than later,” concludes Parbhoo.
According to the recent BA900 report issued by the SARB, FNB Retail reached the Number 1 position in Household Deposit Market Share. Over the years FNB has shown significant growth in deposits and undertook many strategic and innovative initiatives that assist customers in meeting their savings goals in an already challenging market.