With global and local stock markets experiencing high volatility and property prices stalling, many South Africans have been left wondering how to protect their money while still earning inflation beating returns
According to Toby Wooldridge, Head of Go Banking, people with some extra money may want to consider safer investment options until the waters calm down, such as the GoAccount from GoBanking.
"One such option is a money market investment account," says Wooldridge. The money market is an instrument of the fixed income market. Money market securities are essentially IOU's issued by governments, financial institutions, and large corporations and provide a stable return to investors. They are considered extraordinarily safe but because they are extremely conservative, money market securities generally offer lower return than most other securities.
However, in the current economic climate, returns on money market accounts could outperform more risky investments. The yields on money market securities are linked to interest rates. So while rising interest rates are hurting consumers who are in debt, they are providing good returns for money mmarket investors.
According to Wooldridge, when looking for a money market investment account, look for the following:
- An account that offers the best possible interest rate return. The greater the interest rate, the better your yield.
- When comparing accounts, know the difference between the effective rate and the nominal rate and which of these is being quoted. This will allow you to compare apples with apples. While the nominal rate is calculated using simple interest, the effective rate is calculated on compound interest - which means earning interest on interest. The effective rate is usually calculated over a 12 month period.
- When comparing rates look at the nominal interest rate quoted by the banks - this gives you the immediate interest earned.
- Find an option that gives you immediate access to your cash or at least a reduced call period.
- When the markets are as volatile as they currently are, you want to have as much control over your money as possible. You may come across an investment option that allows you to increase your portfolio and spread you risk.
- Don't lock yourself into an account that requires a minimum investment period or long notice period unless you are absolutely sure you will not find a better investment option or have a need to tap into that money at any point during the investment period.
- For example, the Go Banking Go Account is a money market instrument that offers a highly competitive interest rate, but is also a current account. This means customers have immediate access to their money and start earning interest from their first rand.
- Avoid complicated structures.
- This usually means that the financial institutions are trying to cover something up. Some institutes up the premiums they pay you in interest through the monthly bank fees and charges.
- Check that the account does not require a start up or initiation fee. There are accounts out there that don't require this upfront amount.
- Look for an option that allows you to start earning interest with even small amounts of saving. Some accounts require a minimum deposit amount.
- Always check that the investment product/company is registered with the FSB (Financial Services Board) before investing. The FSB can be contacted on 0800 110 443 or 0800 202 087
According to Justmoney.co.za, South Africa's online guide to money, it is vital that people understand how a product works before they invest their cash in it.
Paul Beadle, general manager of Justmoney.co.za, explains: "In such a volatile economic climate, it is important that people save more - but the choice of savings options can be confusing."
Beadle says it is also crucial that savers choose financial products that are transparent and fair because it helps them to better understand what they are getting, so they can compare different accounts and find the best place for their money.
"An account such as the Go Account offers people a way to protect their money and beat inflation," says Beadle. "It is a high-interest earning account that you can use like a typical current account; it is linked to the money markets, so your cash is safe and your earnings are maximised; and it has probably the lowest fees and charges in the marketplace."