Monthly Archives: December 2016

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.

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.