The best deal on your personal cheque account

Bank charges are the bane of many customers.

The latest report by the Solidarity Research Institute shows that increased competition among the nation’s banks appears to be driving fees down. But increased financial pressure on consumers means charges, albeit lower, can still be a significant burden.

So, how do you get the best possible deal on your personal cheque account?

Negotiate your bank charges

There is no law or code regulating the negotiation of bank charges. But Advocate Clive Pillay, the Ombudsman for Banking Services, says the charges levied on ordinary cheque accounts can be fully negotiated.

“In the case of a ‘big account’ with much activity and a reasonable balance, a bank would be more likely to negotiate a reduced rate, to retain the customer, than it would in the case of ‘a small account’, with little activity, such as a salary deposit each month and a number of withdrawals during the course of the month with a very low balance,” he told Moneyweb.

However, it is important to note that the bank can refuse to negotiate lower rates by “exercising their commercial discretion,” says Pillay. In which cases, customers can do little but switch banks, provided the new bank offers lower rates.

If that fails, there are other relatively simple ways to save money on bank charges.

Make sure your account suits your needs

Some banks offer two types of basic cheque accounts: bundles and pay-as you-transact accounts. Depending on the amount of activity on your account, one option may prove more cost-effective than the other.

Bundles, offered by the big four banks, comprise fixed monthly fees for a package of transactions including finite cash deposits and withdrawals, and oftentimes unlimited electronic transactions and notifications. Any transactions which breach the bundle limits are typically charged on as pay-as-you-transact (PAYT) basis.

Put money that you will need

In this advice column Rick Briers-Danks from Veritas Wealth answers a question from a reader who wants to know where to put short-term savings.

Q: I have about R100 000 which I would like to invest with little or no risk whilst keeping up with inflation at the same time. This is the money for my wedding, which I anticipate will be happening in the next two years.

My research tells me that a money market account is the appropriate investment tool. Would you agree? If so, how do I go about choosing one, there are so many available?

Firstly, well done for accumulating this money towards your wedding. It shows serious determination and commitment to a savings plan.

As your investment time horizon is only two years we would agree that using some form of money market is the appropriate investment tool. This is because you can’t afford the risk of too much volatility in the short term.

The main disadvantage of any money market investment, however, is that it probably won’t keep up with inflation over the longer term. For this reason, money market investments are often opened by those who are looking for an interim place to “park” a sum of money for a deposit on a home for example or saving for a wedding in your case.

Having established that the money market is probably the appropriate investment mandate for the funds the next question is which type to use. Not many people are aware but there are two types of money market investments – money market accounts and money market funds.

Money market account

A money market account is offered by a bank, which is a deposit-taking institution. It is an alternative to a savings account or fixed deposit.

Unlike a fixed deposit there is no defined investment term so funds can be invested indefinitely and the rate of return will vary depending on the deposit balance. It is likely to return a slightly lower rate of interest than a fixed deposit account mainly because it is more liquid with quicker access to your funds.

Multiple bond applications affect

There is a view among many South African consumers that applying for a bond at more than one bank will have negative consequences. The belief is that these enquiries will impact on your credit score and therefore hurt your chances of getting a loan or push up its cost if you are successful.

Many people only apply at their own bank for just this reason. They think that they are taking a risk if they shop around.

This raises some obvious concerns. After all, you are only exercising your rights as a consumer to compare prices, so why should you be penalised for it?


What is a given is that every time you apply for a loan of any sort, this will be recorded on your credit profile. This is called footprinting, and credit providers may use this information to assess you.

“Credit providers consider a multitude of factors when vetting applications for credit, one of which would be demand for certain types of credit,” explains David Coleman, the head of analytics at Experian South Africa. “A sudden surge in demand for unsecured or short term credit, linked with signs of stress building on indebtedness and repayment capacity of the consumer, would result in the credit provider taking a more cautious approach in extending further credit to such a consumer.”

However, short term credit is not the same as long term credit like a home loan in this regard. In fact, Nedbank says that it views multiple applications for a bond made at the same time as a single enquiry.

The head of credit for FNB retail, Hannalie Crous explains that they also make a distinction:

“From an FNB perspective we do not look at number of bureau enquiries pertaining to home loans as a key determinant of a credit score,” she says. “The handful of credit bureau enquires associated with a bond application will have no effect, however  a consistent trend indicating that a consumer is taking on multiple loans could influence the outcome of a credit application.”

Not all bureaus will see you the same

In other words, the banks don’t see it as a negative if you shop around for a bond. A number of credit bureaus approached by Moneyweb also took the same line, although with a caveat:

“Each credit bureau and each credit provider that has their own in-house score will score consumers using their own criteria,” says Michelle Dickens, the MD of TPN. “It’s not a one size fits all. As a result there will be a higher weighting towards different aspects of data that will improve or decline the ultimate overall score.”

Retirement if you only start at 35

Employees in their twenties could be tempted to postpone saving for retirement for a decade or two, arguing that they would make up the shortfall later on when they earn a bigger salary.

Even where young workers do save from day one, the fact that many people don’t preserve their retirement benefits when they change jobs, effectively mean they also defer saving for retirement. More than two-thirds of pensioners who participated in Sanlam’s Benchmark Survey 2016 indicated that they did not preserve their savings when changing jobs and it is no surprise then that only 35% of the same group believed they have saved enough for retirement.

A research paper by David Blake, Douglas Wright and Yumeng Zhang called Age-Dependent Investing: Optimal Funding and Investment Strategies in Defined Contribution Pension Plans when Members are Rational Life Cycle Financial Planners investigates a retirement funding model that spreads the income earned as smoothly as possible from the time an individual starts working until the day she dies.

Discussing the implications of such an approach at the launch of the survey, Willem le Roux, actuary and head of investment consulting at Simeka Consultants and Actuaries, said quite controversially, the model demonstrates that the member would save nothing before the age of 35, but from age 35 she would save every increase received above inflation towards her retirement.

“So you are basically capping your standard of living from age 35.”

However controversial such an approach would be, at the very least anyone aged 35 and younger has no reason to bury her head in the sand in the belief that retirement is going to be tough, Le Roux said.

“In fact, the future can still be very rosy.”

But postponing will come at a cost. Based on the average member, contribution rates could get as high as 35% by the age of 60, according to the model.

Le Roux said as an actuary he wouldn’t recommend that everyone under the age of 35 should contribute nothing towards their retirement.

Saving is a culture and it would be very difficult to start saving large portions of your income towards retirement when you’ve saved nothing for a decade.

It would also be extremely challenging to cap your standard of living from age 35.

There are also other factors to consider.

In South Africa, a member won’t be able to contribute 35% of his or her salary in a tax-efficient manner.

“You can deduct from tax 27.5% [of your] contributions and of course if you are a high income earner, you’ve got the R350 000 rand cap to worry about as well,” Le Roux said.

The model also suggests that contributions should be fully invested in equities until around age 50. After 50, the member should gradually start converting from equities into inflation-linked bonds and the equity exposure should reduce to between 20% and 50% by retirement age, depending on your risk profile.

Advice or not to robo

Financial advisors Warren Ingram and Craig Gradidge battled it out at the 2016 Money Expo over the weekend in a debate entitled ‘Man vs Machine: Why a financial planner trumps a robo-advisor’.

Ingram, who is an executive director at Galileo Capital, a firm of financial planners, was fighting the cause of the robo-advisor. Gradidge, the CEO of financial planning company, Gradidge-Mahura Investments, was defending the (human) financial planner.

“Robo-advisors enable the scaling of advice, which is impossible for a single financial planner or financial planning firm to get right,” Ingram argued.

“Robo-advice can’t yet give the same quality of advice as the best financial planners, but they are better than the bad average,” he said, suggesting that robo-advisors provide investors with a set of tools to navigate investment decisions, which is better than being sold a product by a commission-incentivised salesman.

Although not right for everyone, particularly for individuals with very complex financial planning needs, robo-advice provides helpful investment tools and advice for the average, R300-a-month-debit-order investor, Ingram explained.

“[Robo-advice] is not going to help you with the most complex situation, if you have a number of different requirements, it’s not there right now. But in the future, that is going to change. Technology and social media are starting to know you better than you know yourself, or to know you a lot better than one person can get to know you,” he argued.

Having said that, Ingram pointed out that it’s not only investors with small amounts who use robo-advisors. Personal Capital, a robo-advisor in the US, has an average portfolio size of R1.8 million.

You don’t know what you don’t know

Even if effective where you have simple financial planning requirements, Gradidge argued that even then, robo-advice “cannot help you manage the behaviour gap, which is the real reason investors don’t meet their objectives”.

“Robo advisors might provide you with the right asset allocation, but most people don’t achieve their investment objectives because of the behaviours they exhibit after they have invested,” Gradidge said.

Financial kick in the pants

  • Prepare an itemised list of all your expenses and divide the expenses into Group A, being fixed expenses, such as car repayments, other debts and payments you are contractually bound to pay monthly. Other discretionary expenses you are able to reduce or even cancel without suffering any negative legal or financial consequences such as entertainment, clothing, cable TV should be included in a Group B.Select certain Group B expenses you wish to reduce or stop [that gym subscription?), do so and allocate extra payments to shorten the outstanding payment periods (and reduce the interest payable) of Group A expenses or start a small rainy day account for those unexpected financial surprises. Which expenses should be reduced and in what order of priority will depend upon circumstances such as interest rates, tax deductibility, outstanding payment periods and so on. Always a good idea to consult a professional to assist you in making the correct decision.
  • Make an appointment with your financial planner to verify whether your life, disability, dread disease and accident benefits are adequate or surplus to your needs and whether recent product developments have resulted in more cost efficient and/or comprehensive cover being available at the same or at a cheaper cost to you. Planners are, today, required to provide you with comprehensive comparative information to provide you with the peace of mind that you are making a decision that is in your best interest.
  • Create a filing system (whether it be a lever arch file or a folder on your desktop for emailed documentation) for all your financial records such bank or credit card statements, accounts and invoices. This will save an enormous amount of time when a payment is in dispute. If you have other important legal documents, why not also save these using a similar format?
  • Request your short term broker to review your insurance to ensure that your house, car and other property is sufficiently insured against damage or loss.
  • You will have, in all probability, already made a decision as to your medical aid plan for 2017. Speak to the medical aid consultant about so-called Gap cover to meet any possible shortfalls you may experience in the event of a medical emergency. These plans are relatively inexpensive and worth consideration.
  • Harass your banker for a better deal around your banking options. Is it really worth all those bank charges to have a Rolls Royce cheque account and credit card if you are not making use of all the benefits they offer? Consider a down grade of the banking package, at the risk of losing benefits you don’t use anyway but in so doing your bank charges may very well be substantially reduced.

Contribute to an RA in retirement

In this advice column Mikayla Collins from NFB Private Wealth answers a question from a reader who wants to know what the benefits would be of investing a lump sum into a retirement annuity at retirement.

Q: I am of retirement age, have worked for myself my entire life and never contributed to any retirement scheme. I have a lump sum to invest, which is my accumulated savings on which I now plan to retire.

I have been advised to invest this money into a retirement annuity, but I am unsure if this is the best approach. Why should anyone invest money that was not previously tied to a pension fund into a vehicle that will tie up the capital forever? I could invest it elsewhere to generate the same returns and have access to the capital at any time.

Are there tax or fee implications that would make putting the money into an RA a better deal, or is my adviser the one trying to get the good deal?

Contributing a lump sum of voluntary money to a retirement annuity has various advantages and disadvantages. Some apply to the retirement annuity itself, and some apply to the vehicle you choose for producing your income in retirement. For the purposes of your question, I have assumed this to be a living annuity.

First of all, the lump sum you contribute to a retirement annuity will be allowed as a deduction against your income. This is up to a limit of 27.5% of your remuneration or taxable income, or R350 000 (whichever is lower) in the current year. So initially, you will get a tax deduction.

The amount that exceeds this limit would however be carried forward and can be deducted against your income in subsequent years, or will be deducted against your annuity income that you receive from your living annuity at a later stage. So although you only get an immediate tax deduction up to the limit, you don’t lose the full 27.5% allowance.

In addition, within the retirement annuity, and later in a living annuity, you will not pay tax on interest, dividends or capital gains.

However, within a retirement annuity there are restrictions as to how you may invest. These place limits on the amount you may have in equity (no more than 75%), property (no more than 25%) and offshore assets (no more than 25%). As you are close to retirement, it is unlikely that you would want to take on the risk of exceeding these limits anyway, but it is something to take into consideration. When you retire and move the funds to a living annuity, these regulations will not apply.

Saving for the short term

In this advice column Kyle Wakelin from PSG Wealth answers a question from a reader who wants to know how to invest a lump sum that may be needed on short notice.

Q: My husband has been working in the UAE for the past six years. However recently a number of expats were sent home without notice and he is worried that he may be next in line. He sent R320 000 across to South Africa so that we would have money here in the case that he did have to relocate and there was a delay in having his final salary paid out.

We want to know how we should invest this money so that it is available within 30 days if we should need it.

He also has a small pension with Old Mutual, worth around R110 000, and earlier this year he also invested R120 000 with FNB in case of emergencies.

I am unfortunately not able to assess your specific needs based on the limited information we have available. However, I will make a few assumptions to provide some focused advice which should, at least, steer you in the right direction.

Investors clearly need to differentiate between their short-, medium- and long-term requirements and invest in suitable investment vehicles. This means that short-term capital should be allocated to secure and accessible investments, while medium- and especially long-term capital can be invested in the type of investments that should generate inflation beating returns.

It is clear that the amount you wish to invest now may be called upon in the short term and for that reason it needs to be held in a conservative and accessible investment. I would recommend doing a budget exercise to determine what your actual expenses would be in the event of your husband being sent home on short notice. This figure should be a multiple of a chosen number of months – in other words work out six to nine months of expenses.

For this money I would recommend cash funds, such as money market funds. The rates are currently quite attractive and capital can usually be withdrawn within 24 hours. The money you have with FNB money may even serve this function.

You may want to be less conservative with any additional amounts, especially because there is no clear indication that you may need it. In this case you may want to consider investing in an income fund, which is still deemed low risk. There is slight risk of volatility, but with the opportunity of outperforming cash investments by 1% to 2% a year over longer periods.

Your remaining capital, which could be considered a longer-term investment, should incorporate higher-yielding assets including bonds, preference shares, property and even a small portion in equity (shares). The nature and extent of how much you allocate to these different asset classes can only be determined by sitting down with a suitably qualified, independent financial planner.

Anything from a tax free account

Last month Intellidex released research that showed that a total of R2.57 billion had been invested in tax-free savings accounts (TFSAs) in the first 12 months that they were available. A total of 262 493 accounts were opened over this period, showing that there has been fair uptake of these new products.

The study also noted that an estimated 21% of these accounts were opened by first time savers. The initiative has therefore had some success in encouraging South Africans to save.

While this was a positive picture, there was an area of concern. That is that 59% of all TFSAs were opened at banks and the majority of the investments were held in cash.

The problem with this is that it will take years for investors to see any advantage from a TFSA if they are only using it to make a bank deposit. This is because tax payers already receive an interest exemption every year.

Currently this exemption is R23 800 for anyone under the age of 65, and R34 500 for anyone 65 or older. Any tax payer would have to earn interest above that threshold to pay any tax on it.

The best rates currently available on bank deposits in TFSAs are around 9%. So for anyone under the age of 65 to earn more than R23 800 a year in interest and therefore benefit from a TFSA, they would need to have R265 000 in their account.

Since you can only invest R30 000 into a TFSA every year, it would take a minimum of around six and a half years to build up that amount, even accounting for compound interest. It is therefore fair to assume that most people who have opened TFSAs at banks are actually not seeing any benefit from them.

Are you paying too much in bank charges

In South Africa’s somewhat peculiar banking system, monthly charges for transactional accounts are a given. But is the few hundred rand you’re paying per month (if you’re lucky!) the best possible deal?

The first question you need to answer is whether you value having a ‘platinum’ or ‘private clients’ account with all the “value-adds” these offer?

Things like lounge access, bundled credit cards and a ‘personal’ banker are must-haves for some in the upper middle market. On the other end of the scale are basic, no-frills bank accounts (like Capitec’s Global One (and the clones from the other major banks)), but the truth is that most people need something a little more comprehensive than that. There’s likely a home loan, almost certainly vehicle finance and definitely a credit card.

So, do you need a ‘platinum’ (Premier/Prestige/Savvy Bundle)-type account? Do you actually use or need those value-adds? Or, do you enjoy the ‘status’ of having a platinum or black credit card? (Here, emotion – and ego – comes into the equation….)

This is an important question to answer, because the difference in bank charges between a more vanilla bundle account and ‘platinum’ is easily 50%!

While banks try to shoehorn you into product categories based on your salary or profession, there’s nothing stopping you from moving to another product (or refusing those ‘upgrades’). From a personal perspective, the only reason I have an FNB Premier (i.e. platinum) account (not gold) is because I do actually make use of the ‘free’, albeit diminishing, Slow Lounge access. And, the eBucks rewards I earn on this account are the most lucrative of the lot, based on the products I use, my transaction habits and spending patterns. (‘Upgrading’ to Private Clients is a mugs game because the thresholds for ‘earning’ rewards are significantly higher, to match one’s status and earnings, of course!)

Once you’ve answered this question – which is more important than most people realise – the next step is to figure out whether a bundled account or pay-as-you-transact one makes the most sense. Most of us enjoy not having to ‘worry’, so we readily sign up for the all-in-one package without actually understanding the differences in pricing.