Interest rates were hiked to fight inflation and now after the task of stemming inflation seems to be complete, interest rates are on a downward trend for the medium term.
Debates will rage as to why rates were kept so high for so long, and whether stopping inflation was done at the cost of economic growth. The debate rages every interest rate cycle. How far down will the rates come and how quickly? Again, a hardy annual for the financial press.
Those of us with Mortgage Bonds and debt will breathe a sigh of relief. Add that to the funds taken from the Two Pot system and the petrol price reduction, the person in the street will most likely spend some of the added money in his pocket on goods and services thereby boosting the economy.
Some of us were fortunate to have cash in the money market or a bank account for the past two years. The returns have been good. But will reduce over the next few years.
Caesar has raised his ugly head, and some tax clients are being surprised by an added tax bill on interest received.
The first R 23 800 of local interest for a person under 65 is free of tax. For someone older than 65, the exemption is R 34 500. The exemption has not been increased since 2013 and is unlikely to increase. Treasury feel that the tax-free fund investment of R 36 000 annually is enough of an exemption.
The balance of the interest earned after exemptions is taxed at your marginal rate of tax. This can be expensive. And may not stay ahead of inflation. Having funds in cash may feel safe, but you are actually moving backwards.
Maybe now is the time for some tax and investment planning?
Maybe move funds from cash assets to growth assets?
Equities will give the best long-term growth, and the tax on the dividends and eventual capital gain are taxed at a much more generous tax rate.
Maybe move cash from a bank account to a tax-free account? Although this does defeat the biggest benefit of a tax-free account, tax-free long-term growth.
We can help you fine tune your portfolio from both an investment and a tax angle.
Call or mail us to chat things through.