Video: How to use your Tax Free Savings Account

A lot of people don't really know what a Tax Free Savings Account (TFSA) is, and to be honest it's still considered the newbie in town even though it's been around since 2015.

When you invest using your TFSA, you pay zero tax on the capital gains you make, the dividends you receive and the interest you earn, which means much greater opportunity for growth and returns. You can invest up to R36 000 every year, or R500 000 over a lifetime in your TFSA and every year the deadline to reach this amount is before 1 March.

The Upside of TFSAs

  • Time is on your side: Because you pay no tax, your returns are massively compounded over the life of your investment, a big benefit for those with a long investment horizon.
  • Global exposure: Some ETFs track indices in global markets allowing investors to gain international exposure and add global brands to their portfolio.
  • Diversified funds: Legislation states that you can only invest in a collective investment scheme like a unit trust and certain Exchange Traded Funds (ETFs) in your TFSA which means your risk is spread and your portfolio diversified.
  • Tax-free growth: The main advantage of a TFSA is that any interest, dividends, or capital gains earned within the account are completely tax-free. This allows your money to grow faster compared to a taxable account, where you'd pay taxes on those earnings, reducing your overall return.
What can you invest in using a TFSA

Legislation states that you can only invest in a collective investment scheme in your Tax Free Savings account, which includes certain:
  • Exchange Traded Funds (ETFs): These are a collection of different stocks (and sometimes other investment categories) that track an index or theme and can be bought in one transaction. Read more about what an ETF is here, or check out the monthly Top ETF picks here. You can also view and compare different ETFs by using our EasyCompare platform
  • Unit Trusts: A unit trust is a pooled fund, which means that it allows a group of investors to combine their cash and invest it. Think of it like going in on a group gift. Taken altogether, those investments are called the fund's assets. While you as an individual invest in a unit trust fund, the fund itself is run by a fund manager, whose aim is to grow the overall value of unit trust fund. The fund manager does this by investing the fund's assets, usually by buying stocks, bonds, or a combination of these two securities which are listed on the Stock Exchange.
  • Bundles: A Bundle is an investment portfolio that is looked after/managed by a professional money manager, who receives a fee in return. You can compare bundles and unit trusts using our EasyWealth platform
  • Government Bonds: Issued by national governments, these are the first in South Africa to be offered exclusively within a Tax-Free Savings Account on EasyEquities. They are traditionally a low-risk investment option, offering fixed interest payments over a specified period

Need a little more detail? Here's a video that'll give you all the basics of using your Tax Free Savings Account, and investing in Exchange Traded Funds (ETFs). 



Any opinions, news, research, reports, analyses, prices, or other information contained within this research is provided by an employee of EasyEquities an authorised FSP (FSP no 22588) as general market commentary and does not constitute investment advice for the purposes of the Financial Advisory and Intermediary Services Act, 2002. First World Trader (Pty) Ltd t/a EasyEquities (“EasyEquities”) does not warrant the correctness, accuracy, timeliness, reliability or completeness of any information (i) contained within this research and (ii) received from third party data providers. You must rely solely upon your own judgment in all aspects of your investment and/or trading decisions and all investments and/or trades are made at your own risk. EasyEquities (including any of their employees) will not accept any liability for any direct or indirect loss or damage, including without limitation, any loss of profit, which may arise directly or indirectly from use of or reliance on the market commentary. The content contained within is subject to change at any time without notice.

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