From Personal Finance
By Neesa Moodley-isaacs
There are several different types of bank accounts, namely current or cheque
accounts, transmission accounts, savings accounts with transactional
capabilities, pure savings accounts and Mzansi accounts.
The type of account you choose to use should be the most cost-effective for
you, depending on what you use the account for.
You should not, for example, choose an account with high monthly fees if you
want to use the account mainly to save money and make two other transactions every other month.
Current account
A current account is ideal if you are earning a regular monthly income and
make regular payments for accounts, such as your rent or bond, telephone and car repayments.
Such an account allows you to transact and manage your finances using either
your bank's branch, an ATM, the internet, or telephone or cellphone banking.
Other features of a current account include an overdraft facility and a cheque
book and these can be managed through your monthly account statements.
An overdraft facility is a loan facility that is available to you through your
bank. If the amount going out of your account exceeds the money coming in,
you can borrow the difference on a monthly basis from the bank.
Interest rates for overdraft facilities vary from bank to bank and they are
charged as a monthly or annual fee on your account. The size of your overdraft will depend on factors such as your monthly income, your credit record and your ability to meet the repayments.
Most banks have several current accounts with different fees depending on your annual income.
For example, Absa has a Silver, Gold and Platinum current account.
Standard Bank also has several different current accounts, called the Classic,
Achiever, Prestige and Elite accounts.
The benefits of a current account through Standard Bank, depending on the
account you choose, include an overdraft facility, credit card and garage card.
Depending on the current account for which you qualify, and if the bank
decides that you meet the requirements for credit in terms of the National
Credit Act, you may be able to negotiate better interest rates should you
apply for a personal, student or home loan.
Cheque accounts
Bryan McLachlan, the head of transactional and investment products at Nedbank, says the terms "current account" and "cheque account" can be used
interchangeably.
"Some advantages of cheque accounts include access to credit facilities, such
as a cheque book and an overdraft facility. However, these accounts require a
regular income such as a salary," he says.
While most banking customers are moving away from using cheques because of the high costs they incur when they use a cheque, you can opt for a cheque
account and use a cheque card rather than a debit card without the hassle that
comes with keeping a cheque book.
You can use a cheque card to pay for purchases in stores that are online in
much the same way as a credit card, but in this case you use your own funds in your account and not the bank's expensive credit to pay for your purchases.
Credit cards are easy to swipe but if you are not paying off the full balance
each month, using your credit card can be very costly because after an initial
interest-free period, the bank starts charging you high interest on the money
you have spent.
Transmission accounts
A transmission account bridges the gap between current or cheque accounts and the low-cost Mzansi accounts. A transmission account has very low
transactional costs but it does not offer you access to credit or cheque book
facilities.
Janet Johnston, the head of products and pricing at Absa, says this is a good
account to start with if you have never had a bank account before and you want to establish your creditworthiness.
Savings accounts
Savings accounts are designed to allow the money you have invested to grow.
Savings accounts are often card based and can be accessed through your bank's ATMs and, in certain cases, through the internet, your telephone or your cellphone.
Demand savings accounts, such as Absa's Moneybuilder account, give you
immediate access to your money without you incurring penalty fees and they
offer you a higher interest rate than a current account.
Absa has recently reduced the minimum opening deposit on a MoneyBuilder
account to R20.
If you want to save, you could use a 32-day notice account or a fixed deposit
account. However, neither of these accounts is suitable as a transactional
account.
Contractual savings accounts allow you to select the amount you want to save
every month. Absa's Target Save enables you to save as little as R100 a month for a minimum period of six months.
Savings accounts usually pay interest on your money at tiered interest rates.
This means the more money you have in the account, the more interest you will earn.
Because these accounts are intended for savings, you may find that the
transactional costs on savings accounts are marginally higher than those on
current accounts, McLachlan says. Unless you make only one or two transactions in a month (including deposits), you will be better off using a savings account for saving only and not as a transactional account.
Mzansi accounts
Almost four years ago, South Africa's major banks introduced the Mzansi
account as part of an initiative to provide financial services to the unbanked
and underbanked market in South Africa.
Mzansi accounts basically are low-cost transmission accounts aimed at those
who work in the informal economy. Each bank developed its own Mzansi account, with minor differences between them.
You can use your Mzansi account card to deposit and withdraw money and make balance enquiries at your own bank's ATM as well as the ATMs of other banks. You can also use it to recharge your cellphone airtime and pay for purchases instead of paying with cash.
The fact that you can use other bank's ATMs at no extra cost is a major
benefit of these accounts.
Some Mzansi accounts also allow you to make debit order and stop-order
payments. You need to check with each bank what transactions they allow on
their Mzansi account.
You do not have to earn a regular salary to open an Mzansi account, but if
you are employed, you can have your monthly salary or your wages paid directly into your Mzansi account. You can also have a grant, such as a disability grant, paid into your account.
However, the maximum balance allowed in an Mzansi account is R15 000.
To open an Mzansi account, you need to be at least 16 years old, have a South African identity document and deposit at least R20.
Choosing an account
There are a number of factors involved in choosing the account that best suits
you.
The first step is to establish the purpose for opening a bank account - are
you looking for an account in which you can deposit your salary and transact
on a day-to-day basis or are you looking for an account where you can save
money and occasionally transact?
Johnston says you should consider what the bank calls your "user profile" -
this means you should consider how often you intend to use the account, the
type of transactions you intend to make most often.
Transaction costs
When you select a bank account, you need to determine the transactional costs associated with the account. Your monthly income should be a good guide to helping you to choose the right account.
Your choice of account should also be determined by whether you are a low-,
medium- or high-volume transactor. A low-volume transactor is someone who
makes less than eight transactions a month.
Transactions include cash withdrawals, cash deposits and debit order payments.You should also consider the different fee packages that are now available on most transactional accounts, as these could reduce your bank charges depending on the transactions you do each month.
For example, you could use Absa's Silver package if you earn between R5 000
and R10 000 a month.
The Silver package offers you a current account with a debit card, a credit
card with no monthly card fees, an interest-free overdraft facility of up to
R500 and life cover for R10 000 that is paid directly into your account if you
die while you have the account.
If you use Absa's Silver package, you will pay a monthly fee of R99 a month
for 25 transactions.
These can include any of the following transactions: Absa ATM cash withdrawals, Absa ATM cash deposits to a maximum of two a month, Absa ATM balance enquiries and mini-statements, electronic fund transfers, account payments, airtime top-ups, debit orders, stop orders and your overdraft ledger fee.
However, you should be aware that if the number of transactions you do exceeds 25, you will be charged R10 a transaction.