"This incentive is an important tool to encourage South Africans to save more and to reduce household indebtedness and vulnerability," said Treasury.
Lezanne Human, CEO of First National Bank (FNB) savings, investments and fiduciary agreed with Treasury, highlighting the importance of creating a savings habit in South Africa.
"With almost three out of ten of the banked population not saving at all, it is important to encourage and incentivise South Africans to get into the habit of savings, to avoid the need to tap into their retirement fund or get into expensive debt should they need access to money in an emergency," said Human.
Therefore, the earnings (interests and dividends) and growth (capital gains) on these products will not attract income, dividends or capital gains tax.
Product range
With household debt making up 78,3% of disposable income, according to the South African Reserve Bank, South Africans are financially vulnerable and dependent on expensive debt.
"The intention is to reduce South Africans' reliance on expensive, short-term debt if they need money in an emergency," said FNB.
FNB has two products on offer so far. The Tax-Free Cash Deposit Account, and the Tax-Free Shares Account.
The Tax-Free Cash Deposit Account "guarantees capital, has no fees and offers great interest rates. The minimum investment is R1 000 and customers have access to their cash in an emergency, making this a good choice for short or medium term investments" explained FNB.
You can make withdrawals from the account after a 32 day notice period.
The-Tax Free Shares Account is a longer-term investment which allows customers to invest in the Johannesburg Stock Exchange (JSE) top 100 through exchange trade funds (ETF).
FNB said that the fees are based on the customer's portfolio size, for the Free Share Account.
Still to come
Many of the banks and financial institutions, including the likes of Old Mutual and Investec, are still set to release their tax-free products in March
Investec added that its their tax-free products will be offered alongside its iSelect product range.
"[The tax-free products] which have been built around a competitive fee structure, transparent pricing and open architecture (i.e. offering not only Investec funds, but a wide range of other third-party managers) [are being finalised]," said Daryll Welsh, head of product, for Investec IMS.
However, Standard Bank said that they have not yet released their products list, but that they "can confirm that we will be offering a range of solutions in support of this new legislation."
More information
For more information on contributions, rules, and penalties, as well as a look at tax-free savings versus retirement annuities, follow the links below:
- What are the rules of tax-free savings accounts?
- Delay in tax-free saving accounts rumours dispelled,
- 10 facts about tax-free saving accounts,
- Tax-free savings vs. RA's
*At the time of publication, Absa, and Nedbank had not replied with their product lists.