Print
Email Article
"Lower interest rates have been welcomed with joy by borrowers - but they are another nail in the coffin of savers.
Nedbank chief economist Dennis D..."
Lower interest rates have been welcomed with joy by borrowers - but they are another nail in the coffin of savers.
Nedbank chief economist Dennis Dykes points out that savers have already been hit by lower share prices, lower property values, stagnant rents, lower dividends - and now their yields on other savings are negative after tax and inflation.
"Savers have had a rough time but I don't think they will be taken into account much."
Dykes points out that interest paid last year came to R142bn and interest received by households were R72,5bn. Borrowers were thus greater beneficiaries than savers. People with debt outnumber those with savings by even more.
SA's savings rate at 0,06% of disposable income is among the lowest in the world. Even by the low standards of SA, they have seldom been so low. These rates would ordinarily inhibit savings but not right now.
Dykes says interest rates are the least of savers' concerns. Most consumers are worried about their jobs. If they are not reducing debt, they are squirreling money away for future rainy days with scant regard to returns, so long as they are not hugely negative, as on the stock exchange.
Individuals pay no tax on interest under R21 000 and people over 65 can receive R30 000 pa tax free. So for most tax is not a huge concern either.
But wealthy people on the highest (40%) marginal rate are typically receiving a return of 3.6% after tax once their interest income exceeds the threshold. Meantime, inflation is expected to stay above 6% for two more years.
FNB's rate on a deposit of less than R10 000 is a paltry 1.25%. On a deposit of R100 000, that rate improves to R5.3%. Even its rates on fixed deposits are negative after tax and inflation. A one-month fixed deposit of less than R10 000 earns 6.3%.
Capitec pays 6.75% on short-term deposits under R10 000 and 8% on higher amounts. It offers 8.5% over R100 000.
Treasury retail bonds yield 9.5% pa for two years, 9.75% over three years, 10.25% over five years.
Savers can escape the ravages of inflation by buying inflation-linked bonds. These pay a real return (over and above CPI) of 2,5% up to three years, 2,75% over five years and 3% over ten years.
Nedbank chief economist Dennis Dykes points out that savers have already been hit by lower share prices, lower property values, stagnant rents, lower dividends - and now their yields on other savings are negative after tax and inflation.
"Savers have had a rough time but I don't think they will be taken into account much."
Dykes points out that interest paid last year came to R142bn and interest received by households were R72,5bn. Borrowers were thus greater beneficiaries than savers. People with debt outnumber those with savings by even more.
SA's savings rate at 0,06% of disposable income is among the lowest in the world. Even by the low standards of SA, they have seldom been so low. These rates would ordinarily inhibit savings but not right now.
Dykes says interest rates are the least of savers' concerns. Most consumers are worried about their jobs. If they are not reducing debt, they are squirreling money away for future rainy days with scant regard to returns, so long as they are not hugely negative, as on the stock exchange.
Individuals pay no tax on interest under R21 000 and people over 65 can receive R30 000 pa tax free. So for most tax is not a huge concern either.
But wealthy people on the highest (40%) marginal rate are typically receiving a return of 3.6% after tax once their interest income exceeds the threshold. Meantime, inflation is expected to stay above 6% for two more years.
FNB's rate on a deposit of less than R10 000 is a paltry 1.25%. On a deposit of R100 000, that rate improves to R5.3%. Even its rates on fixed deposits are negative after tax and inflation. A one-month fixed deposit of less than R10 000 earns 6.3%.
Capitec pays 6.75% on short-term deposits under R10 000 and 8% on higher amounts. It offers 8.5% over R100 000.
Treasury retail bonds yield 9.5% pa for two years, 9.75% over three years, 10.25% over five years.
Savers can escape the ravages of inflation by buying inflation-linked bonds. These pay a real return (over and above CPI) of 2,5% up to three years, 2,75% over five years and 3% over ten years.
